European stocks under pressure

Traders watch rally fizzle as many countries across Europe observe a public holiday on Thursday

LONDON, England (Reuters) -- European stocks were weaker in late trade on Thursday, after negative broker comment hit high-flying British banks such as Lloyds TSB, as Wall Street failed to build on Wednesday's startling relief-rally.

Encouraging U.S. jobless data failed to lift the holiday-affected gloom and many investors saw little to lure them back into equities, despite the market's recent slide into the bottom half of its five-month trading range.

"There wasn't much conviction behind yesterday's gains. You always get the biggest rallies in a bear market because, after all, in a bull market you don't need them," said Nicholas Williams, European fund manager at Singer & Friedlander Asset Management.

However, some battered telecom stocks were back in favour, notably Europe's leading mobile phone operator Vodafone, while

Renault lifted autos thanks to solid earnings from key shareholder Nissan. (full story)

By 1557 GMT, with most markets closed, the FTSE Eurotop 300 index of pan-European blue chips fell 0.37 percent and the narrower DJ Euro Stoxx 50 shed 0.43 percent.

Both had tacked on over two percent on Wednesday as positive earnings from U.S. tech bellwether Cisco sparked a short, sharp

buying frenzy in both Europe and the United States.

Trading was light across Europe because of the Ascension Day public holiday in many countries, including Finland and Sweden, where big tech names Nokia and Ericsson are listed. Although the holiday is observed in France and Germany, bourses there were trading.

Many market watchers had not expected the markets to rally for a second session, without much sign of a sustained recovery in the economy and company profitability. The Bank of England left interest rates unchanged at 4 percent on Thursday as the manufacturing sector struggles to shake off a recession. (full story)

In New York, meanwhile, the tech-heavy Nasdaq Composite failed to take off from where it left off on Wednesday, when it posted its biggest daily gain in over a year, and slipped 1.9 percent. The Dow Jones industrial average lost 0.66 percent.

Earlier, data showed the number of U.S. workers signing up for state unemployment aid eased last week, suggesting an improvement in the still-weak labour market, although the figures were close to expectations.

The DJ Stoxx bank index was among the weakest sectors, with a loss of one two percent, and accounted for more than half of the Eurotop 300's losses. British heavyweights Lloyds TSB and HSBC Holdings led the fallers, with losses of 1.52 percent and 2.03 percent respectively.

That was after UBS Warburg cut its recommendation on both stocks, citing the extent to which banking stocks had outperformed the broader market this year, having touched 10-month highs at the start of the week.

"The sector has outperformed almost by default -- investors should be aware of the absolute price they are prepared to pay for relative performance," said analyst Timothy Sykes.

UBS Warburg was also blamed for a 6.25 percent dip in German chip maker Infineon, after the broker cut its rating on the stock to "hold" from "buy" and cut its price target.

Similarly up against it was Snam Rete Gas, which slumped 5.4 percent after brokers spotted in the first-quarter results of parent Eni that the Italian gas network company was set to incur a new annual tax of 130 million euros.

But Vodafone jumped 3.85 percent to 108p as the stock continued to retrace its recent dramatic slide. That pared its loss in the year-to-date to almost 40 percent.

"There are people out there arguing that Vodafone shares are worth 70p but that's certainly not our view," said Jason James, European strategist at HSBC in London.

"Under a pound was an extreme level and my guess it that they'll continue to move up for the next month or so."

Britain's BT Group climbed 0.78 percent and Spain's Telefonica added 0.27 percent after it reached a widely-anticipated agreement to merge its digital satellite TV platform with that of pay-TV company Sogecable.

But the sector's gains were severely pared towards the close, while Deutsche Telekom resumed its recent slide, losing 3.45 percent.

Autos were higher, led by Renault, which gained 2.44 percent after Nissan, in which it owns 44.4 percent, revealed it had enjoyed a second straight year of record profit.

Nissan also said it planned to boost its stake in its French partner to 15 percent from a current 13.5 percent.

Among smaller standouts, British IT services company Logica tumbled 12.4 percent after investors realised a deal to supply software to Spain's Telefonica did not include lucrative next generation messaging services.

One sign of continuing investor caution was the reception given to an initial public offer of shares in Britain's biggest music, video and book retailer HMV. Its shares traded 7.2 percent below the 192 pence issue price ahead of its full listing on May 15. (full story)