Financials were the focus yesterday as two big stories emerged. Germany's leading insurer Allianz strengthened 2.5 per cent to €317.17 as it confirmed it was in talks with Dresdner Bank to create Germany's first "bancassurer".

The news pushed shares in Dresdner, Germany's third biggest bank, 0.2 per cent higher at €49.49.

Tony Silverman, insurance analyst at Credit Lyonnais Securities, saw the deal as good for Allianz, which will be able to use Dresdner's bank network as outlets for its savings products, a market that is expected to grow strongly in the future as German pension reforms take effect.

But analysts at Commerzbank cut Allianz to "reduce", saying: "We doubt the deal with Dresdner will lead to an increase in our target price.`

The second story was Deutsche Bank's announcement of "significant" talks with French insurer, Axa, which could potentially create a second new bancassurer.

Deutsche Bank rose 1.9 per cent to €84.69 while Axa added 0.8 per cent to €117.80.

Last year merger talks between Deutsche Bank and Dresdner collapsed after disagreement about how to make cuts.

The Allianz-Dresdner tie-up has significant implications for other German financials because of cross-holdings between companies. It effectively brings Munich Re, Germany's other big insurer, closer to HypoVereinsbank. Hypo shares surged 5.7 per cent to €60.95 while Munich Re slipped 0.1 per cent to €331.80.

Switzerland's leading insurer Zurich Financial Services, which fell sharply last week after a profits warning, jumped back up 4.5 per cent to SFr560 on talk that the chairman would resign. The company denied the rumours.

Technology and telecommunications stocks suffered whiplash from the Nasdaq's 6 per cent fall on Wednesday, combined with its tepid start yesterday. Alcatel was one of the worst hit, falling 7.4 per cent to €36.80, while Nokia fell 5.4 per cent to €27.25.