European markets drew little comfort from the latest run of soft US inflation data, drifting sideways and ending the week with modest net losses.

Frankfurt, where trading was clouded by derivatives expiries, saw robust volume at Deutsche Telecom and a strong demand for Lufthansa and Volkswagen. Fading fuel cost concerns and hopes for an early spin-off for DHL International, Lufthansa's air express arm, helped the shares rise 90 cents to €24.85. Share buy-back hopes plus a broker upgrade got firmly behind motor group Volkswagen, which announced plans to repurchase up to 10 per cent of its stock.

The news prompted Merck Finck to lifts its rating from "underperformer" to "market performer" on the basis that VW was significantly improving its investor relations policy. The shares surged €2.10 or 4.5 per cent to €49.10 after a session high of €49.50.

Deutsche Telekom added €1.27 at €44.27 and Munich Re €5.12 at €315.62 ahead of next week's trading statement. Retailer Metro was in demand, up €1.66 at €42.86.

In the Neuer Markt, T-Online tumbled after UBS Warburg began coverage of the stock with a sell rating and a target price of €18, significantly short of T-Online's April flotation price. The shares in the Internet service provider came off €2.20 at €28.30.

Paris stayed in the red all day as telecom stocks stumbled and the US markets failed to lend inspiration. The CAC-40 index lost 0.4 per cent to 6,614.65 but volume was very high as fund managers who base their portfolios on the Eurostoxx index readjusted their holdings.

Leisure group Accor was one of the few gainers, rising 3.2 per cent to €46.50, after a "buy" note from Credit Suisse First Boston, which set a target price of €56. Broadcaster TF1 rose 1.8 per cent to €75.45 following its good first-half results. France Telecom, which is to have its weighting in the Eurostoxx index cut on Monday, fell 2.3 per cent to €126.10. Bouygues fell 3.2 per cent to €66.05 and Equant 2.1 per cent to €48.21.

Amsterdam ended little changed in spite of solid progress for a wide range of so-called international stocks as a result of index re-weightings.

Philips rose €1.40 to €54.95, Royal Dutch €1.66 to €72.76 and Unilever 90 cents to €51.75. ABN Amro gained 85 cents at €27.49 in 22.4 million shares traded. Heineken, in contrast, fell €1.55 to €55.35 after an uninspiring set of half-year earnings.