Frankfurt turned back in line with many of its neighbours as Wall Street headed lower after a day enlivened by activity in its chemicals sector. The Xetra DAX index finished 47.35 lower at 4,762.38.

Pharmaceuticals and chemicals group Hoechst was an early gainer, rising to a 12-week high as news of the Swiss merger sparked renewed speculation about further consolidation in the sector.

In the banking sector Commerzbank put on DM1.80 to DM54.50. The bank confirmed, after the market closed, speculation that it planned a cross-shareholding deal with Italian insurer Generali.

Paris edged lower as investors sold France Telecom ahead of its coming share issue, and the CAC40 index closed down 3.31 at 3,585.32.

Selling in France Telecom affected overall sentiment. The shares managed to close up 1 French franc at Ffr370. Investors were concerned over share price dilution once the new share issue is completed.

Financial stocks were weighed down by reports that Morgan Stanley had downgraded the UK banking sector. Societe Generale was down Ffr16 or 2.6 per cent to Ffr760 and Paribas lost Ffr10.40 or 2.3 per cent to Ffr435.10.

Milan closed down in thin trade with the Mibtel index 290 or 1.4 per cent lower at 20,410. Profit-taking hit banks. BCI fell 470 lira or 4 per cent to L11,347 while Banca di Roma declined L89 or almost 3 per cent to L3,010.

Brussels came off its intra-day highs as the market ran into mild profit-taking. The Bel-20 index closed 8.17 higher at 3,249.89, off the day's best of 3,282.68.

Amsterdam lost most of its early gains on the back of profit-taking and weaker neighbours and the AEX index finished 3.01 higher at 1,060.32.