WPP, Nokia, autos knock eurostocks off 3-month high

Europe's leading shares drew back from three-month highs late yesterday, dragged down by weak media, auto and tech stocks such as Britain's WPP, Germany's BMW and Finland's Nokia.

Strategists said the market was due a bit of a consolidation after surging by a fifth from last month's six-year lows, while relief about a potentially quick end to the war in Iraq gave way to concerns about a still-dire outlook for company profits.

"The market will hold on to most of its gains, but it should start drifting down once the focus shifts away from a successful resolution to the war and on to the weak underlying economy," said Rupert Thompson, global equity strategist at E*Trade.

As if to underline that point, the European Commission slashed its euro zone growth forecast for 2003 to 1.0 per cent from 1.8 per cent.

It also warned of a potential recession if the conflict in the Gulf dragged on and kept crude oil prices high.

By 1544 GMT, with only Frankfurt still trading officially, the FTSE Eurotop 300 index of pan-European blue chips was off 1.7 per cent at 809 points, while the euro zone Euro Stoxx 50 was down 1.4 per cent.

Among national benchmarks, the French CAC-40 closed down 1.4 per cent, the British FTSE 100 ended 1.7 per cent lower, the Swiss Market Index slipped 0.6 per cent, and the late-trading German Dax index fell 1.6 per cent.

Italy's Mib-30 outperformed and ended flat, helped by slight gains in heavyweight stocks Eni and Generali.

Trading volumes were slightly above average and declining issues outpaced advancers by almost five to one.

The world's largest advertising group WPP was the biggest blue-chip faller with a loss of 8.2 per cent after its top client, US car giant Ford Motor Co., said it planned to slash its administrative and marketing budget by a fifth over the next two years.

The world's biggest mobile phone maker Nokia and Dutch electronic goods and chip-making giant Philips led technology stocks down, falling 4.1 per cent and 5.4 per cent each after US wireless chip maker RF Micro Devices issued a profit warning.

Auto stocks were the day's biggest losers. The DJ Stoxx Auto index fell 3.3 per cent as BMW, Renault, Volkswagen sank by between five per cent and six per cent each.

Traders said some investors took advantage of Monday's sharp gains to sell, based on nagging concerns that the outlook for discretionary consumer spending for big-ticket items had deteriorated in recent weeks.

Shares in French utility Vivendi Environnement skidded 6.7 per cent after sources told Reuters that analysts at Julius Baer had expressed concern that the group may not meet first-half operating profit forecasts.

Traders said investors continued to focus on developments in Iraq, where US forces blasted government targets in the capital Baghdad after trying to kill President Saddam Hussein and his sons with four huge bombs.

Strategists said there was still further upside potential as the remaining war risk premium unwound, but once the conflict ended the market faced the sobering realities of a stuttering economy and weak corporate earnings.

"After the war there is going to be a sharp reckoning, and I suspect markets will have to correct to account for the fact that corporate earnings are looking extremely rocky and economic numbers on both sides of the Atlantic don't look great at all," said Anais Faraj, global strategist at Nomura in London.

On Wall Street, the Dow Jones industrial average was flat and the tech-laced Nasdaq Composite fell 0.4 per cent.