LONDON: European stock markets closed lower yesterday, reversing earlier gains after data in the US showed that industrial activity contracted in November for the first time in more than three years.

In London the FTSE 100 index dropped 0.45% to close at 6,021.50 points, in Paris the CAC 40 fell by 1.38% to 5,254.05 points while in Frankfurt the Dax fell 1.08% to end the day at 6,241.13.

In morning deals, all three markets had posted gains, but a survey by the Institute of Supply Management showed weak manufacturing activity in the US, undermining sentiment by sparking fears of a sharp slowdown of the world??™s biggest economy.

The DJ Euro Stoxx 50 index of eurozone blue-chip shares tumbled 1.38% to 3,932.09 points.

The major US stock indexes also fell in morning trading with the Dow Jones Industrial Average down 0.22% at 12,195.17 while the Nasdaq composite fell 0.68% to 2,415.23. The broad-market Standard & Poor??™s 500 index fell 0.17% to 1,398.19.

In Paris, shares in EDF surged 5.27% to 50.95 euros after government price caps on bills charged by EDF and Gaz de France were criticised by France??™s Constitutional Council.

CM-CIC Securities raised its EDF target price to 51.7 euros from 49, on the prospect that the company might launch a rival bid for Scottish Power to compete with the agreed offer by Iberdrola.

Earlier this week, Scottish Power accepted a takeover bid worth ??11.6bn ($17.15bn, $22.55bn) from Spain??™s second-biggest power company Iberdrola, a move that is set to create Europe??™s third biggest utility group.

Shares in struggling Italian airline Alitalia closed 11.56% higher at 0.94 euros after the Italian government announced it planned to sell half of its near 50% stake in the loss-making group.

"At first glance this is a radical change for Alitalia and a positive event for its shareholders," said a Milan-based trader, who asked not to be named.

Elsewhere in Europe, in Madrid the Ibex 35 closed down 1.36% at 13,660.60 points, in Milan the SP/Mib lost 0.80% to 39,949 points and in Brussels the Bel 20 fell 0.62 to 4,114.52.

The Swiss SMI lost 0.76% to 8,420.38 and in Amsterdam the AEX closed 0.91% lower at 473.32 points.

The dollar tumbled further yesterday after a key survey of US manufacturing activity showed a contraction in November, with the euro rising above $1.33 and the pound breaching the $1.98 level.

In late European trading, the euro changed hands for $1.3317 after hitting a fresh 20-month high earlier in the day, compared with $1.3241 in New York late on Thursday.

The dollar stood at ??115.35, from ??115.77 late on Thursday.

The pound rose to $1.9792 from $1.9657 in New York, and hit a 14-year high in intraday trades.

In the US, the Institute for Supply Management??™s index of manufacturing dropped to 49.50 from 51.2 in October, falling below the 50 mark to indicate contraction in the sector for the first time since April 2003.

IDEAGlobal strategist Divyang Shah said the fall below 50 was particularly significant because it could put the lid on lingering hopes that the Federal Reserve would opt for one more interest rate hike.

"The significance of this level comes from the fact that the Fed has never hiked interest rates when the ISM has been below 50.0, and thus dampens significantly concerns over the recent hawkish rhetoric from the Fed," he said.

The euro surged to fresh 20-month high of $1.3349 in the wake of the data, while the pound hit a new 14-year high of $1.9849.

The dollar had already suffered prior to the ISM data??™s release, owing to a report which suggested the European Central Bank was willing to tolerate sharp gains in the single currency??™s exchange rate.

Analysts cited a report quoting an unnamed ECB official as saying that the eurozone economy could sustain a much sharper rise in the euro??™s rate to $1.40-$1.45, with some suggesting it could go beyond $1.50.

"They (the ECB) are not going to stand in the way, so it??™s all about how we get to higher ground and it??™s speed, as opposed to levels," Shah said.

Among other currencies, the Australian dollar also hit a 20-month high against the US dollar of 0.7928.

The yen meanwhile edged off lows earlier in the day which had taken the euro to a new all-time high above ??154 following weak inflation data overnight.

The Japanese core consumer price index rose by 0.1% in October from a year earlier, below expectations for a 0.2% rise and supporting the view that the Bank of Japan would raise interest rates later rather than sooner.

The euro was changing hands at $1.3317 against $1.3241 on Thursday, ??153.58 (153.30), ??0.6731 (0.6734) and 1.5907 Swiss francs (1.5862).

The dollar stood at ??115.35 (115.77) and 1.1947 Swiss francs (1.1977). The pound was being traded at $1.9792 (1.9657). On the London Bullion Market, the price of gold firmed to $648.75 per ounce, from $646.70 late on Thursday. ??“ AFP