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European stocks end lower as US data disappoints

"It's a tug-of-war between a weak dollar and strong growth ... Growth will win and it will be proved that it was wrong to sell cyclicals on dollar weakness."

Bernd Meyer, European Equity Strategist at Deutsche Bank.

European blue-chip shares ended lower on Friday after a drop in consumer confidence raised doubts about the health of the US economy and Spanish retailer Inditex reported weak results.

The fashion retailer tumbled 10 percent after it posted nine-month profit below forecast and its fourth-quarter guidance disappointed analysts. Swedish rival Hennes & Mauritz, due to give a trading update next week, fell 2 percent.

But Italian food maker Parmalat jumped 10 percent after it said it had finally repaid a bond that expired earlier this week, offering some relief to investors who had feared a liquidity crisis could lead to a debt default.

The FTSE Eurotop 300 index of pan-European blue chips closed down 0.13 percent at 937.56 points. It was also down from a session high of 944.70, but little changed from the close last Friday.

The narrower DJ Euro Stoxx 50 index was a touch higher at 2,685.39 points.

The December University of Michigan consumer sentiment gauge fell to 89.6 from 93.7 in November, below the consensus of 96.0.

"It's surprisingly weak and at face value very disappointing," said Ken Wattret, senior economist at BNP Paribas. "The labor data wasn't as good as expected, so maybe that's why the sentiment data has suffered a setback."

"But the US economy is still looking pretty robust according to most of the business surveys," Wattret said.

Strategists agree the US economy is growing at a healthy pace, but that there are bound to be blips.

They say some investors are still worried about the damage to European exports, economic growth and company profits from the strong euro, trading near a life high of US$1.2250.

"It's a tug-of-war between a weak dollar and strong growth," said Bernd Meyer, European Equity Strategist at Deutsche Bank.

"Growth will win and it will be proved that it was wrong to sell cyclicals on dollar weakness. But before end-December there could be a lot of volatility in equity markets because the economic and corporate news flow is thin."

Strategists said stronger US-led global economic growth meant a pick-up in the volume of business for European firms could outweigh any damage to orders caused by the strong euro.

Some investors have already decided that stronger growth will offset the weak dollar and are piling into auto shares. The DJ Stoxx European autos index rose to its highest level since September 5.

The German Dax, which ended little changed at 3,860.13 points, was boosted by Volkswagen with a gain of 1.2 percent.

German utility E.ON rose 1.1 percent on news it planned to spend 13.8 billion euros over the next three years on integrating and consolidating its operations after a period of substantial growth.

Italy's MIB was one of biggest European losers, down 0.53 percent, weighed down by banks after the chairman of Capitalia was indicted for giving false information to Bank of Italy inspectors in 1996 relating to Banca di Roma.

Capitalia slid 3.3 percent and Sanpaolo ceded 1.2 percent. Sanpaolo said it had full confidence in the management of its funds unit Banca Fideuram, which fell 6.0 percent on talk that its chief executive would resign.

Capitalia was also hit by Italian media reports that it was holding up to 600 million euros of exposure to Parmalat.

Europe's leading information technology consultant, Cap Gemini, ended two percent higher after broker upgrades after Thursday's news of a new 10-year, 3.0 billion pound contract to provide IT services to the British tax authorities.

Cap Gemini and auto maker Peugeot, up 2.9 percent kept France's CAC 40 index around break-even.

They were helped by Internet service provider Wanadoo, a unit of France Telecom, which climbed 2.5 percent on news it was cutting its prices for high-speed Web access to better compete with smaller rivals.

Switzerland's SMI index slipped 0.1 percent to 5,387.6 points and Britain's FTSE rose 0.38 percent to 4,347.6.
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