LONDON (CNNfn) - An early rally on the U.K.'s leading index shifted into reverse Thursday after a warning by Federal Reserve Chairman Alan Greenspan about higher inflation risks in the U.S. economy undercut investor confidence. London shares ended flat, while other European markets poked into the red, pressured by rising U.S. bond yields and Greeenspan.
While Greenspan characteristically didn't tip his hand on interest rates, his remarks about a tight U.S. labor market during a conference in Chicago suggested he may be inclined to a hike in the near future. After jumping more than 1 percent in the morning session, recouping about half of Wednesday's sharp losses, The FTSE 100 backslid on the Greenspan remarks to close up only 4.9 points, or 0.08 percent, at 6,406.6.
The market barely flinched at a decision by the Bank of England to leave its key short-term interest rate unchanged, as widely expected. The European Central Bank in Frankfurt also decided to keep its rate, at 3 percent, on hold.
In Frankfurt, the Xetra Dax pared early gains to close 0.37 percent lower at 5,275.57, weighed down by chemical giant Hoechst (FHOE), which slid 3 percent to 40.80 euros, as speculation mounted that its planned merger with France's Rhône-Poulenc may not pan out.
The SMI also relinquished early gains to close down 0.67 percent, or 48 points, at 7,234.9. Insurance giant Swiss Re finished down more than 2 percent at 3,280 Swiss francs, despite reporting an 18 percent rise in net profit for 1998. The company also announced a $620 million share buyback plan
France's CAC 40 index gave up 0.8 percent, or 34 points, to 4,333.24.
In London, shares of Telewest (TWT), Britain's second-largest cable group, led the FTSE 100 advancers, surging 12.77 percent to end at 288 pence after U.S. software giant Microsoft (MSFT) announced plans to buy a 30 percent stake in U.S. cable carrier MediaOne (UMG). The news led to speculation that Microsoft could also be mulling an investment in leading U.K. cable firm Cable & Wireless (CW).
CW also said it will launch a renewed takeover bid for Japan's International Digital Corp.
In the oil and gas sectors, Shell (SHEL) leapt nearly 6 percent, while British Gas (BG) rocketed 7.8 percent amid better-than-expected earnings results.
In Frankfurt, shares of engineering group MAN ended more than 2 percent higher after the company said it expects to achieve sharp gains in sales and earnings over the next five years.
Frankfurt also had a strong showing from the financial sector following better-than-expected results Wednesday by Deutsche Bank (FDBK) and Hypo-Vereinsbank. Deutsche climbed 0.34 euros to 54.69 after the New York City Comptroller withdrew objections to the acquisition of Bankers Trust. Dresdner (FDRB) and Commerzbank (FCBK) also posted early gains. Dresdner added 0.10 euro to 38.90. But Commerzbank dipped 0.25 euro to 30.00.
Electronics giant Siemens (FSIE) pared early gains but ended up 0.10 euro at 71.20 after reports of a possible agreement with Japan's Fujitsu on a new European PC joint venture.
Swiss holiday firm Kuoni said it plans to stick to its merger deal with the U.K's First Choice (FCD), despite the hostile bid for the U.K. firm by Airtours (AIR).
In London, Thomson (TRV) announced plans to sell 1 million additional holidays as it seeks to maintain its top spot.
Half-year results from ScottishPower (SPW) indicated a 3 percent rise in per-share earnings for the diversified utility group, which also said its purchase of PacifiCorp (PPW) is on track. ScottishPower finished 3.87 percent higher at 566 pence.
Shares of Anglo-Norwegian engineering group Kvaerner ended 2.50 euros higher in Oslo at 157.00 after the company reported a sharp first-quarter loss of 4.86 billion crowns ($630 million), due mainly to heavy restructuring costs. Kvaerner also said it has yet to decide on logistics of a plan, announced last month, to pull out of the shipbuilding business.
Planned merger partners Deutsche Telekom (FDTE) and Telecom Italia said Thursday they will consider floating Deutsche's T-Online Internet service under their tie-up proposal. T-Online had 3 million subscribers at the end of March. Deutsche Telekom shares rose 0.25 euro to 36.75 euros.
-- from staff and wire reports