Steep losses in the telecoms and technology sectors sent European shares sharply lower yesterday. Markets were undermined by anxieties about a potential war in Iraq and the end of a two-day rally on Wall Street.
Heavy selling in Deutsche Telekom and more signs that US determination to disarm Iraq by force was undimmed led European equities to end a three-day winning streak. The technology sector was particularly hard hit with Deutsche Telekom leading the way down as investors dumped the stock in favour of its new convertible bond.
Finnish mobile phone giant Nokia also dropped 4 per cent after US rival Motorola said it was braced for another drop in handset prices and a slow take-up of video phones.
The Dow Jones Euro Stoxx 50 index of leading blue-chip European shares dropped 3 per cent to 2,211 points.
In London, the FTSE shed 1.9 per cent as shares in leading insurer Prudential slid by nearly 7 per cent amid talk it might tap shareholders for cash.
In Germany, the DAX lost more than 4 per cent, dragged down by Deutsche Telekom, which lost as much as 9 per cent at one stage during the day. It had a direct knock-on effect on France Telecom, which in turn hit the French market, leaving the CAC 2.69 per cent lower.
In Dublin, shares closed 0.6 per cent weaker as the market shrugged off the release of AIB full-year results, which were broadly in line with expectations.
"It was just a miserable, scrappy sort of a day," one dealer said.
US markets provided little comfort for Europe as the Dow Jones index dipped below the 8,000 level in early trade as uncertainty over Iraq prompted investors to take profits after a two-day rally had lifted the index by 300 points.
The blue-chip index went on to close 40.5 points lower while the technology-oriented Nasdaq shed 12 points.
"Long-term investors aren't willing to come in and be buyers," said one US analyst. "That's the plight of the market and it will remain that way until we have some resolution with Iraq."
Investors took fright as there was no sign that diplomatic rows and anti-war protests would deter US President, Mr George Bush, backed by British Prime Minister, Mr Tony Blair, from attacking Iraq.
Diplomats said the US and Britain wanted to draft a short UN resolution authorising military action in hopes for a vote at the end of the month.
The dollar fell to a three-week low against the yen and also lost ground to the euro as investor concerns about a possible war in Iraq overshadowed unexpectedly robust US housing data.
The figures showed the highest overall rate of new housing starts since May 1986 and single-family starts at a 24-year peak.
US oil prices rose for the sixth straight day, hitting 29-month highs ahead of US inventory data expected to show crude stocks shrinking. Cold weather in the world's biggest heating oil market in the US northeast also underpinned prices.
US crude futures rose 39 US cents to $37.35 per barrel in New York, the highest since September 2000. International benchmark Brent crude oil was up one cent to $32.55 per barrel in London, and just below a two-year high of $33.10 touched last week.
(Additional reporting by Reuters)
