European Investors Fret Over Embassy Hit

LONDON -- European stocks weakened Monday as investors fretted over the mistaken NATO bombing of the Chinese Embassy in Yugoslavia and paid little heed to Friday's record close on Wall Street.

Anti-NATO protests in China over the bombing also hit the euro overnight, but the currency recovered by about half a cent against the dollar by midday.

Government bonds started the week with a poor performance, pressured a little by the embassy bombing and a gloomy technical outlook.

The Frankfurt bourse had the sharpest fall, losing 1.4 percent by midday, followed by London, down 0.7 percent, and Paris, down 0.5 percent. This poor showing was in spite of the fact the Dow Jones industrial average hit a closing peak Friday, up 84 points at 11,031.

The strong performance of the Dow may have made European markets even more jumpy and U.S. stocks in London eased as investors showed reluctance to add to holdings with the stock market at its current high levels.

Wall Street was expected to show losses at the opening, as indicated by the June S&P futures, which were down 5.4 points.

The energy sector was active in some European bourses as U.S. giants Texaco and Chevron were said to be discussing a merger, and Norsk Hydro launched a bid for fellow Norwegian group Saga Petroleum.

European listed shares in Chevron and Texaco were among the big movers. In Stuttgart, Chevron slid 2.5 euros to 87.50. Texaco leapt 9.5 euros, or 16.6 percent to one-year highs of 66.5 euros.

The Wall Street Journal reported that Chevron may acquire Texaco for about $42 billion, or $80 per share. No agreement was near, the report said.

In Frankfurt, the electronic Xetra DAX index was well down by midday as jittery investors monitored the Balkans conflict. "The attack over the weekend didn't help the situation," one trader said.

Among the day's decliners, Degussa-Huels AG fell nearly 3 percent to 41.05 euros, paring some of its 5 percent gain Friday after reporting a decline in October to March earnings and sales.

London's FTSE 100 index was hit by nagging worries over higher U.S. bond yields, dealers said, although more talk about mergers provided a safety net.

"We have had the Dow record and some positive corporate news but there are worries that people are switching more out of equities and into bonds because of rising [bond] yields. The Chinese situation is also not helping."

On the downside, HSBC Holdings slipped 2.3 percent after the banking group announced the agreed $10.3 billion acquisition of Republic Bank of New York. It later clawed back some of the loss.

Analysts described the purchase as a good strategic fit for HSBC though the prospect of a $3 billion share placing to partly fund the move overshadowed the stock.

Paris stocks were 0.3 percent down by midday. Dealers said an expected rebound failed to occur despite the Dow's record because of worry about U.S. inflation outlook and higher bond yields.

In currency markets, the euro recovered somewhat against the dollar but could not completely shake off negative pressures by the European mid-session.

The euro was at $1.0736 cent after an overnight low of $1.0711 and Friday's U.S. close of $1.0782.

The dollar was virtually unchanged against the yen in early European trade.