European shares closed flat after a late recovery on Thursday as a selloff in government bonds eased and the euro gave up its gains against the dollar, partly helped by some estimate-beating US data. Germany's DAX index, which is heavily export-oriented and benefits from a weak euro, led the bounce, ending 0.5 percent higher.
The euro, which had earlier hit a 10-week peak against the dollar, weakened after the US reported fewer initial jobless claims than expected and German government bond yields fell. This week, a rebound in oil prices caused deflation fears to recede. That in turn suggested the US Federal Reserve will raise interest rates sooner than expected despite mixed economic data, which triggered sell-offs in bonds and shares.
The declines were exacerbated by the unwinding of positions in euro zone equities and bets against the euro built up since the European Central Bank began its quantitative easing programme in March. "Is the unwind done? If so, then equities can rally further," the head of a London trading desk said. The pan-European FTSEurofirst 300 index ended flat at 1,547.04 points after falling to its lowest since late February in the morning.
Britain's FTSE 100 index fell 0.7 percent on the day of a national election that could yield a weak government, propel it towards a vote on EU membership and foster Scottish secession. The euro's recent gains against the dollar hurt expectations for export-oriented European companies, such as auto makers and industrial companies. "The (weaker) dollar ... is definitely a burdening factor for European equities as the correlation between the US currency and European equities is extremely high," UniCredit strategist Christian Stocker said.
"From a sectoral point of view, this is important and definitely negative for cyclical sectors such as automobiles and industrials." Among individual sharp movers, building material company HeidelbergCement rose 3.5 percent after posting estimate beating results. Germany's Beiersdorf rose 3.2 percent to be the top DAX performer. The personal care company reported first-quarter core profit rose more than expected, helped by demand for its products in Eastern Europe.
Shares in Morrisons, which traded without their dividend entitlement, slipped 6.6 percent to record the biggest decline in the FTSE 100. Britain's No 4 grocer reported a further deterioration in underlying sales. Swiss staffing firm Adecco fell 6.2 percent, the worst performance in the FTSEurofirst 300 index, after both its chief executive and chief financial officer quit.