European shares failed to extend their six-month highs, despite a pullback in the record-breaking euro, as investors prepared for a soft Wall Street open and paused for breath after a sizzling post-election US rally. Although the global economic outlook seems brighter after data on Friday showed a big jump in US jobs, concerns about the United States' ability to fund big trade and budget deficits are growing after a summer dip in net capital inflows and is weighing on the dollar.
On Monday, they led to the currency weakening to a record $1.2985 versus the euro, before the greenback recovered to around $1.2920 as European Central Bank President Jean-Claude Trichet dubbed its losses "brutal" and "not welcome" - echoing comments he made in February, when the euro last peaked.
"Trichet is trying to repeat the trick he pulled off earlier this year but I am not sure he is going to be able to pull it off this time," said Ian Gunner, head of foreign exchange research at Mellon Financial.
Many analysts said it was only a matter of time before the euro broke above the psychological $1.30 level, bringing $1.35 into play.
What was negative for the greenback was positive for dollar-denominated spot gold prices, which rose to a 16-year high of $435 per troy ounce in early trade, before easing back.
The euro's renewed vigour was also bad news for unhedged European exporters and for the euro zone economy generally, with some economists equating its gains since the summer to a 50 basis-point interest rate hike by the ECB.
The US employment data pushed European equities to six-month highs on Friday.
But on Monday the FTSEurofirst 300 index of leading European shares dipped 0.1 percent to 1,021 points, while the FTSE 100 Dax CAC-40 indexes were between 0.3 percent higher and 0.4 percent down.
US stock index futures indicated a slightly weaker opening on Wall Street.
BT was among Europe's top blue-chip fallers after the UK telecoms group confirmed it would buy California's Infonet Services for $965 million.