(Updating with market comment)
LONDON (Thomson Financial) - Leading European shares traded slightly lower as some investors chose to lock in recent gains, with Philips a notable decliner after analysts expressed disappointment over the performance of its medical equipment business in the third quarter.
But strength in oil and gas companies sparked by a fresh record high for crude prices put a floor under declines.
At 11.58 am the Dow Jones STOXX 50 Index was down 5.44 points, or 0.1 pct at 3,927 while the DJ STOXX 600 Index dipped 0.52 points to 390.11.
'We're digesting strong gains over the last couple of weeks brought about by the revision of US non-farm payrolls and Bernanke's rate cut,' said Philippe Gijsels, senior equity strategist at Fortis Bank.
Gijsels said European stocks are likely to pull back a little over the next few weeks before rising again toward the end of the year to leave major indices more or less where they are now.
European investors are now looking to Wall Street, which is expected to open mixed as investors mull a 57 pct fall in quarterly earning from banking giant Citigroup because of investments in mortgage-backed securities.
Turning back to Europe, Royal Philips Electronics NV extended early losses after the company cut its margin outlook for its medical systems division in the wake of third quarter results that showed a slowdown in sales growth for the business.
On a more positive note, Philips reported sales and operating profit (EBIT) ahead of market forecasts in the third quarter, driven by strength in its lighting and consumer business.
The Dutch electronics giant also said it will announce further steps in its programme to return cash to shareholders when it publishes its fourth quarter results.
In the banking sector, shares in Northern Rock plunged 24.6 pct as investors looked past takeover chatter and built fresh short positions amid some sceptical broker comment regarding hopes of a speedy resolution to the bank's plight.
The stricken UK mortgage bank confirmed it is in talks with potential buyers, but said the discussions were at a preliminary stage, and that there was no certainty as to their outcome.
Elsewhere in the sector, shares in Banco Santander SA rose 1.9 pct after both UBS and Societe Generale Securities resumed coverage on the stock with 'buy' ratings.
Wood processor and paper companies came under pressure after UPM-Kymmene warned that its third-quarter operating profit, excluding special items, will come in lower than last year's 209 mln eur, on the back of higher wood costs and a stronger euro.
The warning came ahead of the company's third-quarter results due on Oct 30.
UPM-Kymnene shares tumbled 5.9 pct, dragging other sector players down with it. Norske Skog was down 4.8 pct, Stora Enso fell 3.9 pct while Holmen fell 2.9 pct and M-Real slumped 6.5 pct.
Over in France, LVMH shares climbed 3.3 pct, topping the percentage gainers on the Euro STOXX 50, an index which tracks blue-chip performance in 12 countries using the euro.
The luxury goods maker posted a 15 pct growth in third-quarter organic sales ahead of consensus forecasts for growth of 11 pct to 13 pct.
The company reiterated its guidance for a 'significant increase in its results in 2007', supported by its brand momentum.
Hennes & Mauritz climbed 1.5 pct after the Swedish fashion group said its sales in Sept rose 25 pct year-on year, while market expectations were for a 20.8 pct rise, according to a survey of analysts by SME Direkt.
On the M&A front, Air Liquide shares gained 1.4 pct as talk that US chemical giant Dow Chemical could be looking to buy the French group circulated again.
Meanwhile, Gaz de France and Suez said they expect to complete their planned merger in the first half of 2008, after which the new company, GDF Suez, will have 'sustained profitable growth'.
EBITDA is seen rising 10 pct in 2008, and will reach 17 bln eur by 2010.
GDF Suez has targeted an average annual dividend rise of 10-15 pct through 2010, based on GDF's 2007 dividend payout. GdF shares were up 17 pct while Suez gained 1.8 pct.
The oil and gas sector surged as oil hit fresh-all time highs in London and New York, as continuing supply concerns were reinforced by heightened tensions between Turkey and Kurdish rebels in northern Iraq.
London's benchmark Brent crude contracts for November delivery hit a record high of 81.93 usd a barrel while New York crude climbed to a fresh all-time high of 85.19 usd a barrel.
BP was up 2 pct, Total gained 2.1 pct while Royal Dutch Shell rose 2 pct.
EADS shares saw early gains fade as the rise in oil prices had investors worried that it might curtail airline aircraft purchases even as the company's Airbus unit finally delivered its first A380 superjumbo plane to Singapore Airlines after a two-year delay.
In a related development, Gerard Rameix, secretary general of French financial regulator AMF, said in an interview with Le Journal des Finances that he expects to present the final report on the investigation into EADS share transactions to the AMF board in March 2008.
The AMF is conducting a probe into the alleged sales by EADS shareholders and executives of millions of euros worth of shares last spring, just before the announcement of major delays to the A380 sent the stock price tumbling.
EADS shares were last off 1 pct.
In broker action, Peugeot shares fell 2.9 pct after UBS downgraded its recommendation on the French car group to 'sell' from 'neutral' as part of a sector note, saying the group is one of the European carmakers which is most at risk of not meeting its 2008 targets.
It said 20 pct of Peugeot's sales are in the UK and Spain and any weakness there would knock sales at Peugeot -- where there are inflated expectations for EBIT growth.
Mark.cotton@thomson.com mc1/slm/mc1/slm/mc1/ra COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
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