Europe dragged low by Spain

March 25, 2002 Posted: 12:23 PM EST

The threat of strike action in Germany pulled car stocks low

LONDON, England (Reuters) - European stocks ended lower on Monday as the crumbling Argentine peso dragged on Spanish blue chips and DaimlerChrysler led a retreat in auto shares due to concerns over a U.S. lawsuit.

Europe's benchmark indices remain locked in the upper end of their recent trading range and observers said they saw little on the near-term horizon to push them substantially higher.

"I'm expecting a sidelined kind of market for the whole of the rest of the first half of this year," said Rosanna Burcheri, head of Pan-European equities at M&G Asset Management, adding that she still distrusted the mantra of a swift and robust recovery in the world's economy.

"I've been a bit surprised by the upgrades to GDP forecasts which I've seen from some trading houses. I'd would tend to be a little more cautious."

By 1658 GMT, with most European markets closed, the FTSE Eurotop 300 index of pan-European blue chips was down 0.65 percent while the narrower DJ Euro Stoxx 50 index gave up 0.87 percent.

Wall Street was also weak after popping up in the first few minutes of trade.

The Dow Jones industrial average eased 0.48 percent, the broader Standard & Poor's 500 Index lost 0.60 percent and the tech-laden Nasdaq Composite fell 1.07 percent.

Trading was quiet with many market players taking a break ahead of the Easter market holidays. European and U.S. markets are shut on Friday for Easter, with Europe also closed on the following Monday.

Spain's big guns crowded the top of the blue chip loserboard after the peso in Argentina, where many of them are highly exposed, fell to record lows against the dollar, threatening to throw the Argentine government's economic policy into turmoil.

Spanish banks Banco Bilbao Vizcaya Argentaria and Banco Santander Central Hispano fell 2.7 percent and 2.4 percent respectively while Spanish telecom operator Telefonica lost 3.3 percent.

Madrid's IBEX index was the worst performer among Europe's major indices, shedding 2.14 percent.

"In their 2001 results both BBVA and BSCH were well provisioned for Argentina and I think both stocks are fairly valued on fundamantals," said Alessandro Roccati, European banking analyst at Credit Lyonnais in London.

"However, any bad news is being taken as a opportunity to short sell them and unfortunately there's probably more bad news to come out of Argentina."

Car makers were pressured by the twin threat of litigation against DaimlerChrysler and strike action in Germany, where union giant IG Metall began launching a series of warning strikes.

Autos ended the day as the worst-performing sector on the DJ Stoxx series of indices, slipping 2.01 percent.

DaimlerChrysler dropped 2.6 percent after a U.S. federal judge refused to dismiss two lawsuits accusing the carmaker of misleading Chrysler Corp shareholders about the nature of its $36 billion merger with Daimler-Benz in 1998.

Shares in compatriot carmakers BMW and Volkwagen fell 3.3 and 2.6 percent respectively.

Telecoms were weak although Nordic pair Sonera and Telia both saw their share prices rise slightly after they resurrected merger talks.

Tuesday promises to be a big day for the sector, with both Swisscom and Telecom Italia due to report.

"I didn't buy Swisscom but I'm exposed to Telecom Italia. You have a great dividend yield there and I think their margin is going to be quite interesting," said M&G's Burcheri.

"Many of the telecoms are doing the right thing in reducing their capex to maintain profitability," she added. "They have quite good cash flow generation and we've seen in some of the results so far that they've been able to maintain their margins."

The UK media sector was also a focus, with Granada and smaller rival Carlton both falling hard over an escalating dispute between their ITV Digital joint venture and the English Football League.

That was countered by a 0.3 percent gain in sector leader Vivendi Universal of France, which some dealers attributed to the Oscars after "A Beautiful Mind," a Universal Pictures film, won best movie. Others said the stock was bouncing off technical support.

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