European blue chips slashed their losses in late trade yesterday after oil stocks tracked firmer crude prices and as rate cut hopes helped offset growing economic fears after a stream of poor data.
Also putting a better gloss on things was world No.1 cosmetics maker L'Oreal, which jumped six per cent after the French group posted earnings that beat forecasts.
But traders said the scale of the fightback was magnified by stunted volumes and short-covering, as investors braced for today's key US non-farm payrolls report and a mid-quarter trading update from US tech bellwether Intel after the close yesterday.
"There's no real volume behind it, no real buyers," said a senior trader at Munich-based Merck Finck & Co.
French multi-utility Suez was the top blue-chip loser after posting a sharp fall in first-half profit. Also down were chip-related stocks ahead of the Intel statement.
By 1620 GMT, with only Frankfurt officially trading, the FTSE Eurotop 300 index of European blue chips was off 0.5 per cent at 900 points, having been almost 2.5 per cent weaker in earlier trade.
The narrower DJ Euro Stoxx 50 index fell 0.7 per cent to 2,516 points.
Declining issues outpaced advancers by around three-to-one. Leading the charge back were oil majors such as BP and TotalFinaElf, which added about one per cent each as the price of Brent surged past $27.50 a barrel.
The FTSE Eurotop has, nonetheless, lost up to two-thirds of the 20 per cent gained by August 23 since the index hit a five-year intraday low on July 24, as doubts about economic recovery, poor profit visibility, and the threat of war against Iraq saw August's rally peter out.
That has left technical analysts increasingly worried. "It is worrying that the Eurotop 300 reached its three-month average on three occasions in August but failed to close above it on any occasion," said Gerry Celaya of technical trading consultants Red Tower Research.
"Should we break below the 865 points low set on August 6, then that will bring the July 24 low of 822 points into view, and if that is breached, close your eyes and sell," he said.
On Wall Street, the Dow Jones Industrial Average index was 1.2 per cent lower while the tech-heavy Nasdaq Composite was 2.4 per cent weaker.
Suez slumped 5.7 per cent after the energy, water and waste management group said first-half net profit crashed to 164 million euros from a proforma 1.32 billion in the same period last year, due to lower capital gains and a 500 million euro provision for exposure to Argentina's economic crisis.
Chip-related stocks also wobbled ahead of the Intel update, with Germany's Infineon Technologies and Dutch group ASML Holding down by more than five per cent each.
Lehman Brothers, Credit Suisse First Boston and Merrill Lynch have already cut their earnings outlook for Intel.
Dax aspirant Altana was hammered, dropping 11.3 per cent after the German drugs group put back the European regulatory filing for a key respiratory drug by a year.
Altana was also hit by a downgrade from Commerzbank, which cut its rating of the stock to "reduce" from "hold".
France Telecom slumped to two-month lows as a vow by the French government to help it if needed, failed to calm jitters after a press report forecast record first-half losses for the debt-laden firm.
But Europe's No.3 insurer Zurich Financial soared 8.5 per cent after the troubled Swiss group set out a "tough and thorough" recovery plan after slumping to a first half loss of $2.03 billion, saying it would cut 4,500 jobs.
Zurich also said it would raise up to $5 billion largely via a rights issue and asset sales to repair its battered finances.
Economists said economic data was now painting a consistent picture of weakness in both the US manufacturing and non-manufacturing sectors.
"It's all pointing in the same direction - the ISM was a surprising number and a scary number," said John Shepherd, an economist at Dresdner Kleinwort Benson.
That was the Institute for Supply Management's (ISM) US non-manufacturing survey slipped to 50.9 in August from 53.1 in July, instead of rebounding as expected.
The report shadowed a similar downbeat conclusion from the ISM's sister manufacturing survey earlier this week.
Piling on the pressure earlier, weak German manufacturing orders and retail sales data further darkened the outlook for Europe's largest economy.
That boosted euro zone interest rate futures prices, as traders bet slowing economic growth would force the European Central Bank to cut interst rates rather than hike them.
"The market is now pricing in an 80 per cent chance of a quarter-percentage point ECB rate cut by next March," said Aongus Buckley of futures brokers GNI.