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Europe dogged by war jitters
LONDON, England (Reuters) -- European shares were set to end the week on a mixed note as gains in Italian bank Capitalia lifted Milan Friday and helped offset a slide in Munich Re and signs suggesting the war in Iraq is denting company profits. Hotel stocks such as Accor fell after U.S. peer Hilton Hotels halved its profit forecast, and auto stocks such as Volkswagen dipped amid evidence of faltering demand for big-ticket goods. Trading volumes were well below average. But if last week was the week when hopes for a short war peaked, then this was the week when the reality of a possibly protracted affair hit investors, as U.S.-led forces in Iraq met stiff military resistance and a mixed response from local people. "We're not trying to call things in the short term because we don't have any clear idea of how the conflict will pan out," said Kevin Gardiner, European equities strategist at CSFB. The FTSE Eurotop 300 index of pan-European blue chips was down 0.36 percent at 771 points and the DJ Euro Stoxx 50 index was 0.2 percent higher at 2,137 points. Share prices fell in Frankfurt, London, and the Nordic region, but were flat or slightly higher elsewhere. The FTSE 100 share index closed down 20.6 points, or 0.6 percent at 3,708.5, its lowest close in two weeks. The Eurotop 300 benchmark index is 5.1 percent down on the week and has retraced about a third of its nine-day 19 percent gains to March 21, as hopes for a short war have faded. The electronically-traded DAX in Frankfurt ended 2.4 percent down at 2520, while Paris' CAC-40 was up 0.4 percent at 2733. The U.S. has ordered 130,000 more troops to the Gulf and U.S. forces are amassing near Kerbala, about 80 km south of Baghdad, preparing for what could be a key battle with a full Iraqi brigade of some 6,000 men, en route to the capital. Some strategists said they wanted the fog of war to clear before making any recommendations but added that the potential for a sharp hike in shares in the event of a big breakthrough by the U.S.-led forces would also place a cap on sellers. "There's value in the market and when the conflict eventually ends, which we think will be within the next quarter, the market will probably rally as uncertainty is reduced and some of the economic indicators bounce too, but we're not trying to fine tune it any more than that," said CSFB's Gardiner. Other strategists were less favorably inclined. Citing the potential for company earnings growth to slow again in 2004, regardless of the war, HSBC cut its weighting in global equities to "underweight" from "neutral." Food retailer J. Sainsbury chalked up a 2.7 percent gain despite issuing a sombre trading update. Dealers and analysts said the update was not as bad as some had feared. Shares in mobile telecoms group mmO2 slid 4.6 percent as fears of future asset write-downs overshadowed reassurance it expects earnings to come in line when it reports full-year results in May. Munich Re ditched 10.7 percent, ensuring Germany's DAX index underperformed other national benchmarks, after the world's biggest reinsurer was hit by several broker downgrades, amid jitters that a planned bond issue will not be enough to shore up its stretched capital base. Traders added that information from Munich Re's conference call late Thursday -- after the group had reported worse-than-expected 2002 results -- had shown the stock to be overvalued compared with top rival Swiss Re, which saw its shares rise 3.7 percent. Milan's Mib-30 outperformed with a 0.6 percent rise, helped by gains in Capitalia after the loss-making Italian bank forecast a 2003 net profit. Consumer cyclicals sank as hotel stocks such as France's Accor and Spain's NH Hoteles dropped around 3.5 percent each after U.S. peer Hilton Hotels halved its first-quarter profit forecast, saying the war had hurt business. Airlines including British Airways also slipped after Australia's Qantas Airways joined the ranks of network carriers slashing flights amid growing fears that a protracted war in Iraq will crimp air travel. Aerospace group EADS extended its losses from Thursday, sinking another 5.3 percent as investors again fretted about a possible loss of orders for its Airbus aircraft. Some auto stocks like Volkswagen were hit by concerns demand will be dented by the war, after a study by J.D. Power and Associates revealed new U.S. car and light truck sales slid eight percent in the first four days of the conflict. On Wall Street, both the Dow Jones industrial average and the tech-laden Nasdaq Composite were flat. Earlier, a final University of Michigan U.S. consumer sentiment index reading of 77.6 was a bit stronger than expected but was still the lowest figure in almost a decade and highlighted the fragility of the world's biggest economy. "The directional drift in consumer confidence is down and that is the real worry for U.S. monetary authorities as the war drags out," said David Brown, an economist at Bear Stearns. He added that weak U.S. Institute of Supply Management manufacturing date due next Tuesday and the U.S. non-farm payrolls report due next Friday, could prompt a cut in U.S. interest rates before the next monetary policy meeting.
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