Europe's markets drifted lower after weaker sentiment on Wall Street trimmed earlier gains. With the Thanksgiving Day weekend looming in the US, little activity was expected later in the week. But banking and chemical stocks benefited from merger speculation.

Frankfurt

Germany's benchmark Xetra DAX index rallied from early losses to finish virtually unchanged as bullish sentiment concerning merger mania was balanced out by weakness in New York.

At 1520 GMT the electronically traded Xetra DAX index was down 0.1% at 4,948 points. The floor DAX was down 0.2% to 4,949.

"I would say the arguments of recent days are still valid, including takeover talk," said Eckhard Frahm, sales adviser at Merck, Finck & Co in Munich.

The banking sector was among market winners as Deutsche Bank posted a 2.5% rise to DM107, buoyed by news it is planning a takeover of Bankers Trust.

Other banks gained on Wednesday amid the merger speculation with Dresdner up 4.7% to DM71 and HypoVereinsbank up 6.5% to DM142.75.

Hoechst was up 0.6%, extending recent gains after it confirmed it was in talks with France's Rhone-Poulenc about merging their life sciences businsess.

DaimlerChrysler shares were down DM1.7 at DM153.50 after Deutsche Bank said it might sell or reduce its stake in the car group to fund its planned acquisition of Bankers Trust.

Deutsche Telecom fell 3.2% after the firm did not provide a positive outlook for its earnings when revealing its nine months results.

Paris

Renewed merger speculation boosted French stocks on Wednesday pushing the CAC-40 index, but it then fell back to finish up just 10 points, at 3,839.

The dollar's retreat and a lower opening on Wall Street a;sp weighed on the market.

Shares in building group Bouygues were 5.83% higher at Ffr1,143 after dissident investor Vincent Bollore renounced a shareholder pact with the Bouygues family that had limited his stake in the group to 14% for five years.

Vincent Bollore, the second-largest shareholder in Bouygues after the Bouygues family, opposes the family's strategic plans for the company, notably its ambitious expansion into telecoms.

Rhone-Poulenc's stock briefly climbed, but then fell back after the chemicals company and Germany's Hoechst confirmed they were in talks about merging their life sciences activities.

It was down 2.72% at Ffr282.60 after having risen sharply in recent sessions on expectations a merger would be announced.

"We've bought on the rumour and sold on the news, but the stock should resume its rise," one market operator said.

Media reports that France's second- and third-largest pharmaceuticals companies, Sanofi and Synthelabo could announce a tie-up next week boosted company shares.

Synthelabo shares were up 0.09% at Ffr1,116 and Sanofi was down 0.3% at Ffr997.