US figures and euro make for uncertain close

Mixed US data plus another bad day for the euro made for an uncertain close in Europe. A fresh outbreak of funding concerns in the battered telecoms sector also kept sentiment in check.

Reports that KPN was teeing up a €5 billion rights issue threw shares in the Dutch telecoms operator into disarray. In record trading volume, the stock slithered to a low for the year, closing 18.5 per cent down at €8.99. A massive 108 million shares changed hands.

The dramatic shakeout at KPN sparked broad weakness across the sector for the third day running. France Telecom fell 2.2 per cent to €63.60 and Telefonica 1.6 per cent to €17.09. Sonera, widely assumed to be contemplating an equity funding, lost 7.4 per cent at €9.47.

Concerns over valuations after the recent rally brought a downgrade for the technology sector from Deutsche Bank.

"The semiconductor stocks are at mid-cycle valuations at a time when our Japanese analyst has just slashed his growth estimates for this year and next," said James Barty, European strategist. "In telco equipment, we cannot find any value outside of Nokia, while in software, our liking of SAP has been tempered by its rally," he said.

Nokia finished 0.4 per cent firmer at €34.30 while SAP tumbled 3.1 per cent to €162.71.

Swissair surged on disposal news. The shares jumped 6.6 per cent to SFr133 after a $388 million bid was launched for AOM/Air Liberte, the loss-making airline in which Swissair has a near 50 per cent stake.

Among financials, Allianz and Dresdner Bank were heavily traded as investors exploited price differences by swapping Dresdner for Allianz.

Allianz put on 2.5 per cent to €338.30 as Deutsche Bank upgraded its recommendation on the insurer and added the stock to its European focus list. Shares in Dresdner, for which Allianz has launched a €23 billion friendly cash and shares bid, rose 1.6 per cent to €52.98.

Analysts said the difference between Dresdner's current share price, and the €53.13 a share at which the offer values it, was providing arbitrage opportunities.

French insurer CNP, also upgraded by Deutsche, jumped 3.8 per cent to €238.20.

Swedish investment bank and brokerage Carnegie made a strong start on its market debut. The shares closed at SKr133, a sharp premium to the SKr115 initial public offer price.

Carnegie said its offering of 11.7 million shares had been subscribed more than 30 times, signalling that investor appetite for new shares could be recovering.

Deutsche Borse gave up 2.8 per cent to €38.90 as profit-taking, exaggerated by thin trade, called a halt to the rally that preceded yesterday's one-for-10 stock split.