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Thursday March 1, 07:43 PM

Eurostocks at 16-month low, Psion leads tech slide

By Emily Kaiser

LONDON (Reuters) - European stock markets notched 16-month lows once again on Thursday, gagging on another dose of U.S. profit warnings a day after Federal Reserve Chairman Alan Greenspan dashed hopes for a quick interest rate cut.

Britain's handheld computer maker Psion added its name to the list of tech firms issuing bleak forecasts as it announced job cuts and ditched plans to make a "smartphone," sending its shares down 26 percent to a two-year low.

The latest U.S. disappointments came from personal computer seller Gateway and networking equipment maker 3Com . Merrill Lynch lowered its investment rating on communications chip maker Broadcom, citing weakness at 3Com, its biggest customer.

The pan-European FTSE Eurotop 300 settled off 0.9 percent but above the day's lows, which took it back to November 1999 levels. The DJ Euro Stoxx 50 lost 0.8 percent, with technology and telecoms the hardest hit.

Germany's DAX index ended its late session off 1.4 percent at 6,123 points, a shade above session lows of 6,095.

Widely held blue-chips took the brunt of the sell-off, with British Telecom off 6.1 percent, Ericsson down 6 percent and France Telecom 3.5 percent lower.

U.S. markets gave up more ground after most European bourses had closed, setting the stage for further bleeding on Friday. At 1900 GMT, Nasdaq stood off 3.5 percent near session lows, while the Dow Jones industrial average lost 1.7 percent.

Strategists said there was still room for stocks to fall as a steady stream of dim earnings outlooks slammed sentiment, and a sustainable recovery could be many months away.

"Put your money in the 'under the mattress' sector," said Bank of America's European equity strategist Robert Kerr. "There is less downside (risk) than upside, but the V-shaped recovery is history."

SECOND-HALF RECOVERY?

Markets clawed back from session lows after U.S. data suggested the manufacturing sector may have bottomed, bolstering hopes for a second-half recovery. But the hangover from Greenspan's testimony on Wednesday kept stocks on the defensive.

Greenspan said the U.S. economy still faced below-par growth but the dramatic slowing of late 2000 was "less evident" in January and February. His remarks dashed hopes for an interest rate cut before the Fed's next scheduled policy meeting on March 20.

The Fed chairman is slated to address another congressional committee at 3 p.m. British time on Friday.

Fund managers said that with prospects of a rate cut before March 20 looking slim, investors had little to focus on but the slowing U.S. economy and profit warnings.

"We are seeing that disappointment with the Fed come home to roost, and psychology tipping back to what is very much a bear market and perhaps recession," said John Hatherly, head of global analysis with M&G Asset Management.

"Momentum remains very much on the downside though it's quite likely we will get a rate cut on March 20. The next move is that we may see a more wholesale loss of faith outside the tech, media and telecom group, and it would not surprise me to see the Nasdaq test 2,000 points and go through it," he added.

ROYAL BANK

Royal Bank of Scotland was one of the few bright spots, adding more than 9 percent as it recorded profits that beat expectations. British banking peers Barclays and Lloyds were also among the top blue- chip gainers.

BAE Systems added 5.4 percent after the British defence group gave a confident outlook, saying it had drawn a line under problems faced by some of its major military programmes last year.

German steelmaker ThyssenKrupp joined techs and telecoms on the decliners' list, sliding 6.8 percent. Major shareholders and supervisory board chief Heinz Kriwet were due to meet on Thursday to discuss conditions for his resignation.

With technology and telecoms on the ropes again, defensives such as pharmaceuticals and food and beverages drew interest, pushing shares in Diageo and AstraZeneca higher.

(With additional reporting by Huw Jones)

-- (M@rket.trends), March 02, 2001