Europe tumbles for third day

European traders were kept guessing as stocks soared and then tumbled

LONDON, England (CNN) -- European markets closed lower for a third straight session on Tuesday, led by insurers, as investors dumped stocks as the euro weakened and Wall Street once again stumbled in early trading.

"Everyone's a bit astonished about what's going on," Lars Wohlers, European equities trader at WestLB Panmure, told Reuters. "I think everyone's waiting for a final big sell-off. There's further downside in the main indices from a technical perspective, so these falls could accelerate a little bit."

London's FTSE 100 lost 1.1 percent, or 43 points, to 3,8652.5. The CAC 40 blue chip index in Paris fell 2.5 percent, or 79.53 points, to 3,070.16, while Frankfurt's electronically traded Xetra Dax was down 3.3 percent, or 120.96 points, to 3,570.47 in late trading (the German market was set to close at 1800 GMT).

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, lost 1.7 percent, led by life assurance, insurance and information technology sub-sectors. Tobacco, beverage and oil and gas stocks were higher.

Leading the retreat in the insurance sector -- which is extremely vulnerable to equity movements because of firms' large stock holdings -- was Dutch group Aegon, which fell 11.7 percent to 12.29 euros, after also issuing a profit warning on Monday.

French insurer Axa (PCS) declined 7.5 percent to 11.18 euros, while the UK's Royal & Sun Alliance (RSA) dropped 10.6 percent to 170.13 pence, Prudential (PRU) lost 8 percent to 422.50 pence and rival Aviva (AV) fell 6.6 percent to 353.76 pence.

Currency fluctuation also affecting stocks on Tuesday, as the U.S. dollar moved ahead of the euro for the first time since July 15, when Europe's single currency rose above parity. (Full story)

A stronger dollar can either help European stocks -- making exports cheaper, lifting earnings for export-based companies and making their stocks more attractive -- or it can hinder markets -- by lessening the value of returns on euro-denominated stocks.

"We heard a couple of rumours that some of the big U.S. institutions are selling some of their European equities because on the currency side they've made some gains," Wohlers said. "They're adjusting their portfolios by kicking out those European stocks where they don't feel they can make much of a profits."

Technology stocks were boosted by U.S. chip maker Texas Instruments after it reported second-quarter profits that rose in line with expectations. ARM Holdings (ARM), Europe's biggest chip designer, jumped 9.1 percent to 144 pence after reporting a small increase in second-quarter profit, ahead of expectations. (Full story)

EADS (PEAD), which owns 80 percent of commercial jet maker Airbus, fell 2.1 percent to 14 euros -- after trading higher for most of the session -- following reports, later confirmed, that aerospace giant would join forces with Boeing of the U.S. to research and develop a missile defence system.

Dutch-Belgian financial services group Fortis fell 8.7 percent to 14.10 euros after warning it would not meet its full-year earnings guidance if weak market conditions persists. (Full story)

Meanwhile, French software group Dassault Systemes (PDSY) rose 5.2 percent to 33.09 euros as investors overlooked its earlier decision to cuts its 2002 sales forecast, as quarterly earnings were in line with expectations. (Full story)

Reuters (RTR), the world's biggest financial news provider, was up 0.3 percent to 299.8 pence -- down from around 305 pence earlier in the session -- even as the company posted its first loss since floating in 1984. (Full story)

Oil prices were also higher on Tuesday, giving a boost to oil and gas stocks. Brent cruse for September delivery was up 10 cents to $25.52 a barrels in late trading in London.

Shell Transport & Trading (SHEL) -- which owns 40 percent of Royal Dutch/Shell Group -- rose 2.6 percent to 386.27 pence, while Royal Dutch -- which owns the rest of the group -- gained 5.6 percent to 42.10 euros.

The AEX index in Amsterdam lost 3.5 percent and Milan's MIB30 index fell 1.5 percent, while the SMI in Zurich slid 1.5 percent.

In the U.S. on Tuesday, markets were mixed in early trading as Citigroup came under more pressure as Senate investigators said they were looking at its links to Enron. That countered gains in consumer products companies such as 3M and Home Depot.

At midday, the Dow Jones industrial average was up 66.31 points to 7,750.89, while the Nasdaq composite index was down 0.26 points to 1,282.39 and the Standard & Poor's 500 index was 1.91 points lower at 821.02.