Pharmaceuticals pound European stocks

Pharmaceutical heavyweights knocked European shares from 2-1/2 year highs yesterday after AstraZeneca and US industry leader Pfizer announced setbacks for key drug hopes.

Roche, the maker of a drug competing with AstraZeneca's lung cancer drug Iressa, saw its shares add 1.3 per cent, however, making the Swiss stock a rare bright spot in an equity market also hit by a jump in the price of oil.

Among big decliners, Cairn Energy lost almost a fifth of its value after disappointing drilling results dented faith in the company's ability to continue its stellar run at finding oil in India.

The FTSEurofirst 300 index of pan-European blue chips was 0.9 per cent lower at 1,032.5 points, off from a session peak of 1,044 points, a level last seen in July 2002, and erasing most of the week's gains.

The benchmark index ended the week barely 0.3 per cent higher than it started it.

The narrower DJ Euro Stoxx 50 index fell 1.3 per cent to 2,891.5 points.

A surprise rise in German business confidence had lent some support to equities earlier in the day amid hopes the improved sentiment would translate into a stronger economy. The IFO business climate index rose to its highest level since April, and above all economists' forecasts.

"The key issue for the Eurozone will be whether its gradual recovery can spread into domestic demand," said economist Philip Shaw at Investec in London. "This could be particularly pertinent in 2005 as a rising euro could slow export growth."

But a $1 spike in oil prices took the shine off the market as worries that a cold spell in the US could erode already depleted winter fuel inventories boosted energy prices.

Health stocks were by far the market's biggest decliners, with shares in Anglo-Swedish heavyweight AstraZeneca off 8.3 per cent on news clinical studies had found its Iressa lung cancer drug did not help patients survive.

News from Pfizer that patients taking its blockbuster arthritis drug Celebrex in a long-term cancer-prevention trial had more than twice the number of fatal or non-fatal heart attacks as those taking a placebo added to gloom in the sector.

Eli Lilly dealt a third blow to the sector, saying it was adding a warning to the label of its attention deficit/hyperactivity disorder medicine Strattera, advising patients with jaundice or a liver injury to stop taking the treatment.

Industry analysts said the slew of bad news reflected the difficulties of bringing effective new medicines to market and the increasingly tough regulatory environment in terms of proving safety and efficacy.

Weak drugmakers weighed on London's FTSE 100 index, which closed 0.8 per cent lower, while elsewhere in Europe Paris's CAC 40 shed 1.7 per cent and Frankfurt's DAX fell 1.2 per cent. The Swiss Market Index closed 0.8 per cent lower.

Elsewhere, France Telecom fell 2.1 per cent after saying its net debt as of January would be €57 billion under the new IFRS international accounting standards, instead of 47.7 billion under French rules.

Traders said comments by French Industry Minister Patrick Devedjian saying he was not very favourable towards France Telecom's request to increase the subscription fee it charges to use its network also weighed on the stock.