London - Europe's leading shares drew back from three-month highs late yesterday, dragged down by weak media, car and technology 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, the 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 percent from 1.8 percent.
It also warned of a potential recession if the conflict in the Gulf dragged on and kept crude oil prices high.
By yesterday afternoon, with only Frankfurt still trading officially, the FTSE Eurotop 300 index of pan-European blue chips was off 1.7 percent, while the euro zone Euro Stoxx 50 was down 1.4 percent.
Among national benchmarks, the French CAC 40 closed down 1.4 percent, the British FTSE 100 ended 1.7 percent lower, the Swiss benchmark index slipped 0.6 percent, and the late-trading German DAX index had fallen 1.6 percent.
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 percent after its top client, US car giant Ford Motor, said it planned to slash its administrative and marketing budget by a fifth over the next two years.
The world's biggest cellphone maker, Nokia, and Dutch electronic goods and chip-making giant Philips led technology stocks down, falling 4.1 percent and 5.4 percent respectively after US wireless chip maker RF Micro Devices issued a profit warning.
Vehicle stocks were the day's biggest losers. The DJ Stoxx auto index fell 3.3 percent as BMW, Renault and Volkswagen sank by between 5 percent and 6 percent each.
Traders said some investors took advantage of Monday's sharp gains to sell, based on nagging concerns that the outlook for consumer spending on big-ticket items had deteriorated in recent weeks.
Shares in French utility Vivendi Environment skidded 6.7 percent 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, a global strategist at Nomura in London.