Sickly tech, telcos hit eurostocks, builders bubble

Sickly tech and telecom groups dragged European shares lower yesterday, ending a week of wild rides as investors remain dogged by doubts over a recovering economy`s ability to lift profits.

"It all goes to show the lack of conviction in a market where people don`t know where to place their bets and which gets pulled by the slightest bit of news," said Matthew Leeman, a fund manager at Lombard Odier.

The FTSE Eurotop 300 index of the region`s leading blue chips was down 1.15 per centat 1,203 points when most bourses shut at 1530 GMT.

Tech sentiment was soured by job cuts and a profit warning from UK computer services firm Logica, a world leader in mobile phone text messaging. Its shares slumped 17.5 per centwhile Anglo-Dutch rival CMG sank 9.3 percent.

Concern about credit worthiness in telcos deepened after rating agencies slashed a huge chunk of US WorldCom debt to "junk" status.

Deutsche Telekom, also hit by worries over an EU probe into its pricing, dropped 6.7 percent, and France Telecom shed 9.6 percent. Both companies have debts of about 60 billion euros each, and their shares hit new lifetime lows.

But there were gains for basic resources, carmakers and retail stocks while construction stocks tested 10-month highs set in late April.

And shares in UK security services group Chubb jumped 15 per cent on news it was in fresh talks to be taken over by bigger Swedish rival Securitas to cement its position as world leader in the sector. Securitas shares tumbled over seven per cent.

The Eurotop 300, like other benchmarks, has swung erratically in the past five session, gaining two per cent on Wednesday when the Nasdaq surged nearly 8 per centafter Cisco System`s strong results, only to hit a wall of worry over tech and telcos. It is down 0.6 per cent for the week, and 4.6 per cent for the year.

On Wall Street, the Dow Jones industrial average was down 0.2 per cent at 10,017 points, while the tech-rich Nasdaq Composite was 1.3 per centlower.

The Euro Stoxx 50 index of euro zone blue chips was down 1.6 per cent at 3,468 points.

The rocky ride may not be over for investors who are nursing stock losses for the third year in a row in Europe. The market`s next big milestone will be second quarter earnings, not due for another two months.

"For the next few weeks, with the earnings season out of the way, the summer months tend to be quieter and more susceptible to erratic price moves," Lombard Odier`s Leeman said.

Corporate Europe remains cautious about the outlook and investors need more proof from companies that economic recovery will be strong enough to lift profits.

"We think the market looks somewhat oversold and Europe looks pretty atttractive compared to other markets. Recovery is coming through, which supports our view the market will be higher at the end of the year from where it is now," Leeman said.

Europe`s benchmark indices have managed to eke out gains on just three days in the past three weeks or so - ever since tech bellwether Nokia stunned the market by cutting its sales growth forecast on April 18.

US producer price data showed that inflation for manufacturers was weaker than expected in April, helping fuel the view that the Federal Reserve will not raise rates soon.

"In the short term I think the market is going to be volatile and will move more or less sideways from here," said Hendrick Garz, European equity strategist at West LB Panmure.

"Uncertainty over the sustainability of an economic recovery in the US is very deeply rooted."

Construction was the day`s best-performing sector, adding 0.6 per cent to approach 10-month highs.

Shares in Portugal`s Cimpor Europe`s seventh-largest cement maker, added 4 per cent to hit a year-high amid expectation that Swiss cement giant Holcim would give up its 10 per cent stake in the company.

British buildings material company Novar rose 3 per cent after being upgraded by UBS Warburg while Amey, one of several copanies set to benefit from a plan to modernise the London underground, jumped 3 per cent.

"We`ve been overweight in construction for the last couple of months," Garz said.

"The sector has been looking attractive from the cyclical perspective as well as the valuation perspective but, based on the latter, we`re now thinking of taking profits in the sector."

Economy sensitive autos and basic producers also rose, with German automaker BMW up 2.8 per cent after announcing a 24.7 per cent year-on-year increase in its worldwide car sales.