European equities ended slightly lower on Tuesday, as signs of resilience in U.S. retail sales was not enough to eclipse inflation fears that hit UK stocks, while banks fell on renewed concerns over asset writedowns.
France's biggest retail bank Credit Agricole tumbled 5.6 percent after unveiling a capital increase of 5.9 billion euros following more subprime-related writedowns.
The FTSEurofirst 300 index of top European shares closed 0.03 percent lower at 1,346.08 points, with the DJ Stoxx banking index down 0.4 percent.
Wal-Mart's disappointing outlook also weighed on the market.
While the retail giant reported stronger-than-expected earnings, it said results for the current quarter could miss analysts forecasts, citing a tough economic environment as well as higher transportation costs.
Energy stocks lost ground, surrendering some of their recent hefty gains, as U.S. crude oil futures hovered around $124 a barrel, easing from a record high of $126.40 touched on Monday.
Repsol lost 0.7 percent, Royal Dutch Shell shares traded in Amsterdam shed 1.2 percent, and gas producer BG Group lost 3.7 percent.
Shares of mining companies rose, with Rio Tinto gaining 3.7 percent as traders cited market talk that rival BHP Billiton could sweeten its takeover offer for Rio.
BHP declined to comment.
The company's stock gained 1.4 percent.
Stocks got a boost when the U.S. Commerce Department released data showing total sales at U.S. retailers weakened modestly in April, but outside the hard-pressed auto sector they showed more resilience than many analysts had anticipated.
"When you strip out auto sales, the figure comes better than expected. The market seems to see in the data some sort of positive signal, but I don't think it's a green light to buy stocks," said Yann Lepape, Chief Global Macro Strategy at Oddo Securities, in Paris.
"You can strip out all the sectors you want to get the number you want, but the bottom line is that overall sales are still in a downward trend, and the macro backdrop remains the same: consumer spending is losing steam," Lepape said.
"With pressures on consumer --tightening credit conditions, continued drop in house prices, job losses and rising oil prices -- it's hard to see how retail sales will improve," he said.
The FTSEurofirst 300 index, which has gained about 12 percent since reaching an almost 2-1/2 year low in March, is still down 11 percent on the year, hit by fears of more writedowns in the banking sector and concerns over the prospect of a U.S. recession.
"The economic slowdown has just started, and stock markets will remain in a bear mode for a while," Oddo Securities' Lepape said.
"Recent corporate results have shown resilience, but only because of the companies' exposure to emerging economies.
At some point, these economies will be hit by the slowdown in the U.S., Europe and Japan, as well as by rising inflation at home." "That should happen around the end of 2008 and in 2009, and that's when stocks will really reach the bottom, much lower than what we have recently seen."
UK Inflation Fears
Around Europe, Germany's DAX index rose 0.3 percent, France's CAC 40 gained 0.5 percent, while UK's FTSE 100 index underperformed, losing 0.14 percent after data showed UK inflation jumped to 3 percent in April.
The data ignited fears that rising inflation may prevent the Bank of England from cutting interest rates to boost the economy and the housing market, where a measure of property prices slumped to its lowest in at least 30 years in April.
Britain's biggest mortgage lender HBOS fell 4.1 percent and rival Bradford & Bingley dropped 8.2 percent.
Alliance & Leicester sank 10 percent after saying it took a hit to profit from assets tarnished by the credit crisis.
On the upside, aluminum producer Norsk Hydro rose 4.3 percent as traders said the company was set to benefit from supply constraints in the market due to operational problems for Chinese rivals hit by an earthquake.
Corporate Express added 6.2 percent after U.S. office supply retailer Staples raised its hostile offer for the Dutch business products wholesaler to 8 euros per share from 7.25 euros.