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Europe at six-year lows
LONDON, England -- European shares circled six-year closing lows in a broad-based retreat on Wednesday, tugged lower by relentless uncertainty about a possible war in Iraq and led by a steep fall in scentmaker Givaudan. Chemical shares were among the worst performers, losing 1.7 percent as J.P. Morgan cut its earnings forecast for U.S. chemical manufacturer Dow citing a margin squeeze from energy and raw material cost inflation. Investors also showed a preference for safe-haven government bonds over equities as U.S. preparations for a war in Iraq gathered pace despite opposition from France, Russia and Germany. "The war is at the front of everyone's mind," Roland Lescure, head of strategy and research at CDC Ixis Asset Management in Paris told Reuters. "As long as war hasn't started there will be uncertainty, there will be volatility and there will be fear," Lescure said. Foreign ministers from anti-war powers France, Russia and Germany agreed on Wednesday not to allow a resolution authorizing war in Iraq to be passed in the United Nations Security Council. U.S. Secretary of State Colin Powell said he was increasingly optimistic about securing a U.N. resolution backing war against Iraq. The dollar's fall to a four-year low against the euro also aggravated concerns about the impact of a strong currency on European companies' competitiveness. By 1640, with only Frankfurt still trading, the FTSE Eurotop 300 index was down one percent at 745.73 points -- below a six-year closing low last Wednesday of 747.98 points. Declining issues outpaced advancers by a margin of three-to-one in moderate volume. On Wall Street, the Dow Jones industrial average shed 0.2 percent and the Nasdaq Composite was flat as investors were penned in by global geopolitical tensions. Switzerland's Givaudan was Europe's biggest decliner after surprising investors with a fall in 2002 net profit as integration costs and lower margins from a new business hurt the maker of scents and tastes. Its shares fell 10.6 percent. Beleaguered insurers were under the cosh again, depressed by a 14.5 percent fall in Friends Provident as the UK group became the latest insurer to warn that dividend growth would slow this year. It closed at a record low of 75-3/4 pence. Attention now turns to rival Royal & Sun Alliance's results on Thursday when the UK group is widely expected to trim payouts too. Its shares were down 5.6 percent. Global mining giant Rio Tinto was among the losers in the hard-hit basic resources sector, falling 5.4 percent amid talk that joint house broker Cazenove had cut its rating on the stock and partly because of adjustment for a dividend. Elsewhere, Anglo-Dutch computer services firm LogicaCMG sank 15.9 percent after posting results in line with expectations, but with an outlook that analysts said would be hard to meet. Debt-laden France Telecom lost two percent after making French corporate history by posting a record net loss of 20.7 billion. The firm is poised to announce a 15 billion euro cash call after accumulating 68 billion euros of debt in an ambitious expansion spree. Media giant Vivendi bucked the trend, rising 8.3 percent as speculation swirled around a potential battle for its U.S. entertainment empire, which spans Hollywood to cable TV. U.S. media giant Viacom has joined oil billionaire Marvin Davis in the line-up of potential bidders as Vivendi faces pressure to cut its huge debt pile. Strategists remain convinced that the market is poised to rally once any potential war breaks out, but question the durability of any upturn. "On the other side of the rally there will be fundamental questions again and the fundamental picture of the stock market is not okay," said Lescure. "In Europe, the economic picture is not as good as it is in the U.S. It's one of very weak growth and constrained economic policy. We'll see a relief rally on the start of the war once the uncertainty is lifted, but then we will probably have a cap and range trade for the rest of the year," he added. On Thursday, European investors will look to the European Central Bank's policymaking meeting for a steer on the region's economic prospects. The market is betting on a rate cut but is less certain on how big a reduction it will announce. "We still think that the bigger 50 basis points move is the odds on favorite judging by the current strength of the euro," David Brown, Chief European economist at Bear Stearns bank told Reuters. The FTSE 100 index <.FTSE> closed down 61.8 points, or 1.7 percent at 3,563.5 while the Dow Jones <.DJI> industrial average was up a fraction after a 133-point retreat the previous day. The Xetra Dax finished up 0.71 percent at 2,518.70, while the French CAC40 was down 0.79 percent near the end of trading at 2655.07.
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