Wall Street weighs on European stocks

European shares closed yesterday's session on a negative note, tracking losses on Wall Street, with oil stocks proving a drag as crude languished close to $55 a barrel, and utility and technology stocks dropped.

Among major movers, British retailer Next jumped as several brokers upgraded the stock after its trading update, while bid talk spurred rises in publisher Reed Elsevier and carmaker Volkswagen.

The FTSEurofirst 300 index of top European shares closed down 0.9 per cent at 1,486.1 points, its lowest close of the holiday shortened-week during which it gained 0.2 per cent. The impact of losses on Wall Street was felt on European markets as investors judged stronger-than-expected US December jobs data reduced the chances of an interest rate cut in the world's biggest economy.

"The numbers are really good and any (US interest) rate cut fantasies are now pushed into the background," said Stefan Schilbe, chief economist at HSBC Trinkaus & Burkhardt.

"These numbers show that the economic outlook (for the US) is explicitly positive and the euro could fall below $1.30."

Among major European indexes, the FTSE 100 was down 1.1 per cent, the DAX was down 1.2 per cent and the CAC 40 was 1.0 per cent lower.

Oil stocks weighed on the market, with Total down 1.3 per cent and BP one per cent lower as crude traded around $55.20 a barrel, extending its sharp losses on mild weather and rising US fuel inventories.

However, the prospect of cheaper fuel bills helped buoy airlines, with shares in Air France-KLM up 3.3 per cent, while Lufthansa added 2.3 per cent and discount carrier Ryanair gained 1.5 per cent.

Technology stocks dropped, with the world's biggest mobile phone maker Nokia down 4.2 per cent after its closest rival Motorola issued a profit warning.

Utility stocks sank, with E.ON down 4.4 per cent and RWE down 3.9 per cent as investors shifted assets out of the sector. Stocks were also hit by a Financial Times report that Europe's biggest power firms faced an intensified crackdown by European regulators after an inquiry into the sector found evidence of collusion and other market failings.

On the upside, talk of a possible takeover bid from Wolters Kluwer helped drive shares in Reed Elsevier up 1.9 per cent, while Volkswagen added 2.5 per cent on market talk Porsche was raising its stake.

After the market close, Porsche denied buying shares in the rival carmaker and said its voting stake remained at 27.4 per cent.

British retailer Next added 4.5 per cent, boosted by a batch of broker upgrades as investors took another chance to digest its latest trading statement.

Elsewhere, Germany's Merck added 0.6 per cent after confirming it was considering selling its generic drugs business, estimated by analysts to be worth more than €4 billion.