European stock markets ended a grim week on a mostly negative note yesterday after the euro surged beyond its 1999 launch level against the dollar and bashed currency-sensitive insurance and auto stocks.
Dutch group Aegon led the insurance decliners while Germany's Volkswagen and DaimlerChrysler led auto shares down, ensuring stock indices in Amsterdam and Frankfurt underperformed the rest of the region.
Milan's Mib-30 index bucked the downward trend, as investors snapped up Telecom Italia amid raised hopes of a share buyback before an expected merger.
Shares generally ended off their lows thanks to a steady performance on Wall Street.
But strategists said they were less than confident about the outlook for company profits and for markets, having seen regional benchmark indexes retrace about a quarter of the 20 to 25 per cent gains made since plunging to six-year lows in March.
"The macro outlook is pretty difficult, particularly in Europe, where the corporate sector is facing this massive increase in the euro in a very short order of time," said Gary Dugan, European equities strategist at JP Morgan Private Bank.
Strategists say every 10 per cent gain in the euro accounts for three to four per cent of European companies' earnings, because of the translation effect on firms' foreign currency earnings and because of reduced competitiveness.
"The only reason we haven't gone 'underweight' equities - we're currently 'neutral' - is that there's a lot of retail money entering the market for the first time in years," Dugan said.
By 1559 GMT, with only Frankfurt still officially open, the FTSE Eurotop 300 index of pan-European blue chips was down 0.6 per cent at 803 points and the euro zone Euro Stoxx 50 index shed 0.6 per cent.
The Eurotop 300 is down about three per cent on the week. National benchmarks edged up in Milan and Madrid, were flat in Zurich, but fell elsewhere in the region.
Dealers said investors were also closing positions before a three-day weekend for US and British markets, with the threat of more terror attacks at the back of people's minds. Markets in both countries will be closed on Monday.
Dutch Aegon and British rival Prudential fell 7.7 per cent and 3.2 per cent respectively after broker Morgan Stanley warned on Wednesday that a weak dollar could further dent their already fragile earnings.
German insurer Allianz fell 4.2 per cent after investment bank JP Morgan cut its rating of the stock to "neutral" from "overweight" due to the risk of a credit-rating downgrade.
Daimler and Volkswagen led a slide in auto stocks, with losses of around 2.0 per cent each, on concerns a strong euro would make it harder to sell cars abroad and reduce the value of any repatriated earnings.
Telecom Italia rose two per cent, helped by expectations that virtually all of a 9 billion-euro pot to sweeten a merger with Olivetti will be spent on Telecom Italia stock because shares in Olivetti had closed above their expected tender price.
Meanwhile, shares in Europe's mobile phone leader Vodafone climbed 2.2 per cent as investors looked ahead to its full-year results next week in a positive frame of mind.
Vodafone reports in sterling, which has also depreciated against the euro, and around half of its sales are generated in the euro zone, meaning it could receive a fillip from recent foreign-exchange trends.
Shares in Credit Agricole surged 6.8 per cent as analysts speculated that funds were switching into the French banking stock after merger partner Credit Lyonnais was temporarily removed from Paris's Cac-40 benchmark index, before the merger deal's closure.
Shares British advertising giant WPP jumped 4.0 per cent as the advance-buying season for television commercials in the United States hit record levels.
Strategists said the US economy and Wall Street was likely to dictate where European shares went next.
"We will think more aggressively about going 'underweight' if the next round of US economic indicators come in significantly below expectations," said Dugan.
Next week's holiday-shortened schedule of economic data is light, aside from the German Ifo business climate survey on Monday.