Mobile phone giant Nokia's unexpectedly weak outlook hammered European blue chips yesterday although mixed US data kept economic recovery hopes alive, halting the slide to some extent.
Nokia shares closed 15.5 per cent down in Helsinki after its weak outlook caused European technology shares' biggest one-day percentage plunge in over a year.
"Nokia's figures were right on target but their outlook caught people on the wrong foot," said Ulf Mortizen, fund manager at Nordinvest in Hamburg.
French chipmaker STMicroelectronics shed 5.2 per cent on fears it will sell fewer chips to Nokia - its biggest customer.
Rivals of Nokia's telecom networks division also sank on concerns over sales growth.
Sweden's Ericsson, which reports later this week, fell as much as 8.42 per cent and France's Alcatel shed over five per cent.
Europe's technology sector fell almost eight per cent - its biggest one-day percentage plunge in over a year. The tech sector has surged about 20 per cent so far this year, easily making it the market's best performing industry group as investors bet an economic recovery would trigger more capital expenditure on chips, computers, cables and other equipment.
Nokia is the heaviest weighted share in the tech sector. By 1605 GMT, with only Frankfurt's DAX still officialy trading, the FTSE Eurotop 300 index was 0.93 per cent lower at 858 points, while the DJ Euro Stoxx 50 index shed 1.49 per cent to 2,451 points.
But some investors said Nokia's plunge was overdone. "The numbers and the outlook does not justify a 16 per cent drop. This is ridiculous and overdone," said Peter Luedke, trader at private bank Merck Finck & Co in Munich.
European markets recovered from the day's lows as US stock markets stabilised and after US econonomic data gave some hope of an economic recovery. Housing starts in June rose at the fastest pace since January while new weekly jobless claims fell but were still at high levels.
Further evidence of the US economy ticking higher came from the Philadelphia Federal Reserve bank's business survey which jumped to 8.3 in July from four in June, above analysts' expectations of seven.
The Dow Jones was 0.35 per cent down and the tech-heavy Nasdaq Composite 2.18 per cent lower when most European stock markets closed.
US shares were also hit by Nokia, and by International Business Machines' inability to give an upbeat outlook when it reported after the close in New York on Wednesday.
But market watchers said unsatisfactory company earnings remained a problem.
"I am a little worried that most increases in earnings are due to cost-cutting and not as a result of rising earnings. Companies are also not delivering on the outlook that people are expecting," Nordinvest's Moritzen said.
Unless numbers come in better than the two to three per cent above estimates, that companies are often able to manufacture as a positive surprise, markets are like to trade sideways, said Rupert Thompson, global equity strategist at E*Trade Securities Limited, a small independent brokerage.
"I would be surprised if market gets through this earnings season without falling back. They have moved rather ahead of events, particularly in technology," Thompson said.
Europe's biggest software group, German-listed SAP, shed 7.26 per cent as its licence sales unnerved investors.
SAP posted second-quarter earnings that came in ahead of market expectations and raised its profit margin forecast for the full 2003 year, but licence sales disappointed.
Among leading gainers, northern Irish drugmaker Galen rocketed 14.29 per cent after saying it was in talks that may lead to a takeover bid for the group.
Swedish machinery and compressor maker Atlas Copco posted better than expected second-quarter profits and issued a slightly more upbeat near-term outlook, boosting its shares by nearly 10 per cent.
French utility Suez rose 2.51 per cent after investment bank Morgan Stanley raised its rating on to "overweight" from "equalweight" and its price target to €16.5 from 14.5.