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Tue, Mar 7, 2000
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Euro Stocks Trim Losses
As Compaq Fears Ease

By Ron Askew  Reuters
LONDON — European share markets heaved a collective sigh of relief and clawed back some or all of their early losses on Monday when Wall Street held its nerve after Compaq's shock earning's forecast.

The rally in shares also aided the dollar which had wobbled earlier on fears that international investors might be about to sell U.S. assets.

The Dow Jones industrial index of leading U.S. shares was up around 0.3 percent shortly after London closed, having opened sharply lower.

The world's most closely watched share benchmark was rattled by the warning from personal computer maker Compaq late on Friday that it expected a first quarter profit of about $0.15 a share, about half Wall Street's expectations.

But the fall presented investors with a buying opportunity and prices duly rallied, U.S.-based traders said.

European stocks behaved similarly, having been sharply lower in early trade when they had a two percent fall in Japanese shares to digest.

London's FTSE index picked itself off its lows to end down 0.5 percent from Friday's record close, only its second decline of the past 11 sessions.

The index was led lower by losses in telecom stocks including British Telecom which shed 0.8 percent.

Analysts said the Compaq warning helped undermine the expensive valuations of "growth" stocks in the British technology and telecom sectors, contrasting with the low ratings elsewhere in the British equity market.

"Some of these [highly-rated] stocks could be very vulnerable and the FTSE 100 looks due a setback," said Patrick Evershed, manager of a special situations fund at money manager Rathbone Brothers.

The pattern was similar in Paris where stocks rallied to close near Friday's record finish, shrugging off U.S. earnings jitters.

"We had the Compaq story this morning but people didn't sell the cash, they sold the futures. This afternoon we've seen huge buying of the futures by U.S. houses," a trader in Paris said.

Automaker Renault was the biggest gainer on CAC-40, rising 5.6 percent, after Chairman Louis Schweitzer said in an interview that it did not rule out a sale of Nissan Diesel.

In Frankfurt, Germany's Xetra DAX ended up 0.66 percent as positive sentiment from last week's euro zone interest rate cut helped cancel out the weak start on Wall Street and a sharp fall in Deutsche Bank shares.

The index was buoyed by a 0.87 percent gain in Deutsche Telekom, which traders said attracted buyers ahead of its earnings news conference due on Thursday.

Prices remained supported by the European Central Bank's larger-than-expected interest rate cut late last Thursday, when the ECB cut key rates by 50 basis points to 2.5 percent.

Earlier, the DAX was down around one percent. Sentiment was also depressed by a slide in Deutsche Bank shares, which shed around three percent on a rights offering to fund the purchase of Bankers Trust.

In currencies, the dollar's losses were stemmed when expectations of huge losses for U.S. equity prices failed to materialize, analysts said.

During the session the dollar touched a 1-1/2-week low against the yen and matched lows set against the euro last week as traders tried to price in a sharp early drop in the Dow Jones Industrial Average.

"The dollar has steadied with the Dow, but it is still under pressure," said Nick Shamim, bond and currency strategist at Norinchukin International Plc.

"Dollar weakness this morning was based on expected weakness in U.S. equity prices, purely on the Compaq profit warning."

The Compaq warning provoked a flurry of long dollar position squaring during European trade which saw dollar/yen touch a low of 119.74. Euro/dollar was quoted at $1.0840/42 from $1.0780/82 late Friday.

Shamim said much of the short-covering in euro/dollar was based on the realization that interest rates in the euro zone, after last week's cut to 2.50 percent, would be on hold for the foreseeable future.

Comments by ECB chief Wim Duisenberg last week that the 50 basis points reduction was made to remove any expectation of another cut soon also assisted the euro.

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