European markets marked time in thin holiday trade. The FTSE Eurobloc 100 index closed 3.20 lower at 1,036.06. The FTSE Eurotop 100 dropped 18.34 to 2,892.53, while the broader Eurotop 300 settled 6.83 down at 1,264.45. Forestry and paper stocks were sharply higher, however, as Goldman Sachs reiterated its positive view on the sector. The sector, which jumped 5.4 per cent, was the best performer in the Eurotop 300.

Frankfurt pulled ahead late in the day to close marginally higher, with a star performance coming from BASF after news of the merger plan by its US rivals, Dow Chemical and Union Carbide. The Xetra Dax index finished 11.69 higher at 5,119.37.

BASF, Europe's largest chemicals manufacturer, soared €2.26 or 5.3 per cent to €44.74 on news of the US merger plan which will create the world's second largest chemicals group. BASF is scheduled to report first-half earnings today. Among the financials, Deutsche Bank gained €1.99 to €60.89 as Goldman Sachs added the stock to its European recommended list.

Telecoms group Mannesmann remained under pressure ahead of first-half results today. The shares lost €5.25 to €135.55 amid uncertainty over the impact of its first-half 14.9 billion deutschmark purchase of stakes in Italy's Omnitel and Infostrada and its 2.3 bilion deutschmark acquisition of domestic fixed line rival Otelo.

Viag fell €7.50 to €477.50 after the utility posted lower first-half sales and profit figures. Analysts noted that although the figures were not good, merger speculation in the European energy sector was likely to support the shares. Among the motor stocks, BMW gained €24.50 to €738 on news of sharp rises in US sales of its cars and light trucks.

Paris moved lower in thin trade, with a handful of heavyweight stocks providing the main drag. The CAC-40 index ended 28.55 or 0.7 per cent lower at 4326.20. Telecommunications stocks fell along with their peers across Europe. France Telecom dropped €1.15 or 1.7 per cent to €65.20, Equant drew back €3.50 or 4.1 per cent to €82 and Alcatel closed €3.9 or 2.7 per cent lower at €140.80. The three banks involved in a complex take-over dispute continued to perform poorly on worries that their battle would not be cleanly resolved. Banque Nationale de Paris has made hostile bids for both Societe Generale and Paribas in an attempt to prevent them merging.

BNP fell €1.45 or 1.9 per cent to €74.50, SocGen shed €5 or 2.9 per cent to close at €169 and Paribas declined €7.70 or 7.2 per cent to €99.20.