Subdued European indices masked some fairly dramatic individual sector and share price movements.

Water utilities surged 3.9 per cent while the beverage sector rose 2.7 per cent, largely as a result of an 11.3 per cent bounce for Allied Domecq, the UK spirits and pub group.

The FTSE Eurotop 100 index eased 4.30 to 3,074.85, while the FTSE Eurotop 300 index shaded 1.19 at 1,330.51. The FTSE Eurobloc 100 hardened 0.04 at 1,089.16. Frankfurt reversed early gains to close with the Xetra Dax index off 5.82 at 5,377.40.

Volkswagen responded to news of a gain of nearly 30 per cent in US car and light-truck sales in April by rising to €67.45 before settling at €65.90, up 35 cents.

Paris drew back slightly as several index heavyweights suffered falls. The CAC-40 index closed 4.29, or 0.1 per cent, lower at 4,438.55.

Some larger stocks fell victim to profit-taking as investors responded to the opening weakness on Wall Street. France Telecom fell €1.50 to €75.50, Pinault-Printemps, the retailer, closed €2 lower at €155 and L'Oreal dropped €19 to €604.

Insurance shares were mixed in spite of a press report of a large-scale merger in the sector. Allianz dipped €2.89 to €298.50, but Munich Re rose €6.70 to €193.45.

Deutsche Bank continued to gain ground ahead of today's first-quarter statement. The shares added €1.35 to €56.75.

Amsterdam ended 2.90 higher at 578.67 on the AEX index, after another day of relatively narrow trading.

Zurich gave up early gains to close lower, with the SMI index 87.2 down at 7,355.9.

Olivetti closed 0.3 per cent higher at €3.29 and its take-over target, Telecom Italia, eased 0.6 per cent to €9.99 after a group of fund managers claiming to represent about 25 per cent of Telecom Italia savings shares said they would seek a separate vote of approval on any merger.

Telecom Italia has announced a merger with Deutsche Telekom in an attempt to foil Olivetti's bid. Massimo D'Alema, the prime minister, said Telecom Italia could not fall into German state hands via a merger with Deutsche Telekom. Olivetti said at an analysts' presentation that it was examining possible synergies with Fininvest , the holding company of political leader Silvio Berlusconi.

Madrid ended weaker as the banking sector drew back on fears about profit margins. The general index closed 6.09, or 0.7 per cent, lower at 889.22.