European shares slid on a weak dollar and disappointing corporate news.

Frankfurt

A mix of dollar weakness and negative corporate news from banks and telecoms knocked shares back sharply, although stocks came off their lows as Wall Street began positively.

The late-trading Xetra dax index finished down 118 points, or 2.5%, at 4,564 points. The main Dax index earlier closed down 3.12% or 146 at 4,536.

The retreat brings to a halt a three-day recovery, which some market observers thought had strengthened the likelihood of a continued upward trend.

Traders were surprised at the extent of the pessimism clouding the market Wednesday. "I didn't expect such weakness," said Ralf Zienert, trader at Credit Suisse First Boston in Frankfurt.

Zienert added that low trading volumes indicate investors are backing off, perhaps in light of a general downgrade today of German stocks to underweight from neutral by Dresdner Kleinwort Benson in its European portfolio.

Bayerische HypoVereinsbank set the ball rolling by announcing a surprise DM5bn one-time risk provision in 1998 before releasing its nine-month earnings report.

Deutsche Telekom also disappointed investors, when nine-month earnings showed growing market erosion to private operators.

Meanwhile, the dollar was lower against the Deutsche mark. At 1330 GMT, it was at DM1.6528, down from DM1.6534 late yesterday in New York.

Paris

French stocks also ended off session lows, after Wall Street rediscovered the way forward, but the dollar's drift and the urge to bank profits dominated trade today.

The leading Cac 40 index closed down 57 points at 3,493.

"Although Italy's rate cut Monday buoyed investor sentiment, the Paris stock market is now affected by a gloomy world economic forecast," said Christian Royer, a trader at IFF Bourse brokerage house.

Traders said uncertainties over the Brazilian plan to back up its currency, and the real and disappointing results released yesterday by Japanese companies, cut short the forward momentum.

The highlight was Alcatel which posted a sharp rise against the falling trend, traders said. The company said earlier today that nine-month revenue rose 2.4% to FFr93.2, from FFr91.