Euro markets end miserable week

LONDON, England (Reuters) -- Europe's stock markets fell for the eighth time in nine sessions on Friday as investors wiped billion of euros off the value of telecom and technology shares amid fears over the pace of economic upturn.

"People are having to face the possibility that the economic recovery will be less robust than usual," said Michael MacPhee, European fund manager at Baillie Gifford in Edinburgh.

"Largely though, this is a secular problem with tech and telcos, which had got tremendously over-inflated and where we have seen the worst of the overinvestment."

The DJ Stoxx European telecoms index slumped to its lowest level since November 1997, led by Britain's Vodafone, which tumbled 9.7 percent after it wrong-footed analysts by cutting its forecasts for its German and Italian businesses.

That knocked some nine billion euros off Vodafone's market value and sent its share price below the psychologically important 100 pence mark for the first time since February 1998.

The telecom index lost 9.7 percent this week, taking its losses to 34 percent since the start of the year and 78 percent since the height of the TMT (technology, media and telecom) frenzy in mid-March 2000.

Friday's 5.57 percent fall in the index represented a loss in market capitalisastion of about 27 billion euros.

Technology stocks fared little better. Finland's Nokia dived 8.6 percent, Dutch electronics group Philips shed 7.7 percent and Sweden's Ericsson offloaded 7.5 percent as the DJ Stoxx index for the sector dropped 5.45 percent.

It has now lost 25 percent since the current sell-off kicked off in early March and 76 percent since March 2000.

"Telecom and techs still don't look cheap," warned MacPhee, suggesting the beleagured sectors could fall further.

"Technology companies have very little pricing power. People have wised up to the fact that they're cyclical stocks and not rapid growth stocks."

Benchmarks cushioned

Gains in oil stocks, banks and basic resources ensured Europe's benchmark indices were, to some extent at least, cushioned from the TMT carnage.

By 1600 GMT, with most of Europe's bourses closed, the FTSE Eurotop 300 index of pan-European blue chips was 0.76 percent lower while the narrower DJ Euro Stoxx 50 index was off 1.34 percent.

U.S. markets were also noticably weaker, hamstrung by the latest offering of disconcerting economic data.

The Dow Jones industrial average lost 1.04 percent, the broader Standard & Poor's 500 Index gave up 1.12 percent and the tech-laden Nasdaq Composite slumped 1.83 percent.

Jobs data showed that while April U.S. non-farm payrolls rose in line with expectations, the unemployment rate jumped to a higher-than-expected 6.0 percent -- it's highest level since August 1994.

"The figures were a little bit weak and might give a bit more ammunition to the bears, allowing them to focus on continued sogginess in the labour market..." said Matthew Wickens, global economist at ABN Amro.

Adding to the pressure, the Institute of Supply Management's survey of the huge U.S. services sector showed the non-manufacturing index came in at 55.30 for April, down from 57.30 in the previous month.

While a reading above 50 indicates expansion in the sector, the latest data was still weaker than expected.

The strength in financials, food and beverage stocks and, particularly, the heavyweight oil majors all favoured the London market, where the FTSE 100 index of leading shares bucked the negative trend to gain 0.56 percent.

Nine of the 10 leading European blue-chip gainers were London-listed stocks and the 10th was Royal Dutch, which rose with Britain's Shell as the sister companies continued to bask in the glow from their encouraging earnings statement on Tuesday.

British drinks giant Diageo was the day's biggest winner, adding 3.9 percent after it announced it had bought back 1.7 million of its own shares.

"You have to bear in mind that despite appearances, there are plenty of companies around in bog-standard industries like food and beverage or tobacco where share prices have done pretty well over the past two years," MacPhee said.

Next week sees a slowdown in the number of big European companies issuing results, although investors will still focus on figures from Italian energy giant Eni, Telecom Italia and French bank BNP Paribas.

The U.S. Federal Reserve meets on Tuesday but, with economic recovery still looking fragile, is almost certain to leave interest rates unchanged.