Frankfurt DAX:

German shares were dragged back under the key 4,500 level to finish weaker as the dollar faltered and Wall Street slipped into negative territory. Earlier in the day the Dax index climbed to a record level of 4,581 points.

The Xetra Dax, which measures all-day computer trading, ended 14.53 points down at 4,494.72.

Hoechst and Schering were among the biggest decliners as speculation about mergers in the pharmaceuticals sector calmed.

Meanwhile, SAP preference shares ended down 1.3 per cent after the resignation of the co-chief executive.

Paris CAC-40:

French shares ended at a record close but below a historic intra-day high of 3,239.39 as profittaking took the index from its new summit.

The first three top traded shares alone, AGF, France Telecom and Rhone-Poulenc, added up to four billion francs to the market.

The market was underpinned by a strong rise in France Telecom which has the heaviest weighting in the index. It closed up 5.17 per cent at 278.90 francs with foreign investments funds on the buying side.

AGF was the most traded stock after news that the Finance Minister was expected to give the green light to a bid by Germany's Allianz, gaining 1.82 per cent to 324.

Milan Mibtel:

Italian shares closed off the day's highs as traders decided to take profits after the market set a new record.

Compart shares were the market's biggest losers, falling 3.6 per cent to 1,401 lire after chairman, Mr Luigi Lucchini, ruled out the possibility of a merger between Compart and HdP. HdP's shares fell 2.5 per cent to 1,306 lire.

San Paolo bank rose 5.2 per cent to 22,250 lire ahead of a board meeting today that could indicate whether the bank plans to merge with IMI.

Fiat shares closed flat and Eni fell 0.69 per cent to 10,330 lire.