Poor US payrolls data ensured a slightly weaker end to a strong week for European shares, but hopes that a jobless recovery would convince the US Federal Reserve to keep borrowing costs low helped limit equity selling.
Economy-sensitive media, retail and cyclicals stocks slipped as a US government report showed US employers added just 21,000 workers to their payrolls last month -- the market had forecast 125,000 -- fuelling fears that job insecurity could curb US consumer spending, the linchpin of the economic recovery.
But some analysts saw a bright side.
"This is no disaster for equity markets by any means," said BNP Paribas economist Ken Wattret. "If the payrolls aren't shaking, it means continued low levels of interest rates, and this is supportive for equities."
"Equity markets are in a sort of win-win situation here, as strong payrolls equal strong consumption, and low payrolls mean the Fed is on hold for quite a while," he said.
On the corporate front, Franco-Belgian bank Dexia was hit a day after posting disappointing quarterly profits, while French utility Suez fell after Deutsche Bank downgraded its rating on valuation grounds.
Oil stocks also weighed on the markets, despite oil prices hitting new one year highs. Shell shed 1.7 percent as its new chief said the group would listen to reforms that investors insist it needs, but indicated there would be no quick fixes.
Investors have been concerned about Shell's growth prospects and corporate structure.
The FTSE Eurotop 300 index of pan-European blue chips closed 0.4 percent lower at around 1,022.7 points, below the session's near 20-month high of 1,027.65 but still 1.4 percent higher than at the start of the week.
Equity markets have rebounded nearly 50 percent from last March's six-year nadir on the back of economic recovery and low interest rates that helped boost corporate earnings.
Friday's surprisingly weak payrolls figures upset the hoped-for scenario of steady, sustainable economic recovery in the US, some strategists said.
But others said US consumption remained robust, and the economy could afford to carry on with a jobless recovery for another few months before it became a threat to economic growth.
"Low job creation is of course problematic in the long term, but in the more immediate term it means earnings growth could surprise again on the upside when reports resume again in the next month or so in the United States," said Eric Migeot, director of equity research and strategy at SG Asset Management.
Many market watchers added that a few more months of low interest rates could allow the US economy more time to strengthen.
The narrower DJ Euro Stoxx 50 index closed 0.2 percent weaker at about 2,945.6 points, as economy-tied stocks like French outdoor advertising firm JC Decaux or spirits giant Allied Domecq nosed down in the wake of US payrolls.
Among standout movers, Deut--sche Bank fell 1.9 percent as short-term investors cashed in on the stock's surge on merger speculation a day before.
But Swiss employment agency Adecco rose 1.4 percent, despite the weak US payrolls, on hopes it will put accounting worries behind it after setting a date for its full-year results.
However there was a silver lining as analysts scaled back their expectations of the first rise in US interest rates in the current cycle.
"The market will be impacted [next week] by the revision of interest rate expectations brought about by the very weak jobs data," said Jeremy Batstone, head of research at stockbroker Fyshe Group.
"The equity market is going to open the week in a relatively nervous fashion," he warned.
Dealers will also be weighing industrial and manufactured data on Tuesday for clues on the strength of the British economic recovery.
The figures were "likely to be watched very closely," Batstone said.
"We had a very bad month in December as you would expect because of course it's a short month because of a lot of [capacity] shutdown because of Christmas."
"But the January figure is expected to have recovered somewhat. So it will probably add further evidence to the suggestion that the UK is growing quite nicely," Batstone said.
Next week sees another clutch of companies post their annual results, notably Lloyds TSB bank on Monday and insurer Royal and Sun Alliance on Thursday.
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