European shares pared losses to turn positive briefly today, with UK engineering group Weir among the main gainers as it benefited from a broker upgrade.
Traders said equity markets were likely to remain volatile while uncertainty persists over the outcome of US budget talks.
The FTSEurofirst 300 index briefly turned positive to rise to a new 19-month peak of 1,143.04 points, before slipping back to trade flat at 1,141.94 points by 0924 GMT.
Many traders said they were looking for opportunities to sell shares into any rally in order to lock in their profits before the year-end, adding that some equity indexes looked "overbought" on a technical basis and therefore poised for minor declines.
The Stoxx Europe 600 technology index was the worst performing sector, falling 0.5 per cent after Swedish group Ericsson announced a fourth-quarter writedown, pushing its shares down 1.5 per cent.
"There's too many suppliers in that sector," said Clairinvest fund manager Ion-Marc Valahu.
US politicians remain locked in talks to find a deal to avoid a "fiscal cliff" of government spending cuts and tax rises due to take effect in early 2013 that could hurt the world's largest economy.
Although most investors expect a deal on the US budget to be struck eventually, signs of delays have opened the way to fresh equity index falls, with moves often exacerbated since volumes have been thin ahead of the Christmas holiday period.
Some traders added that European equity indexes were looking "overbought" on a technical chart basis, giving them further reason to sell shares.
The Euro Stoxx 50 had stepped into "overbought" territory on its 14-day its Relative Strength Index (RSI) for the first time since 2009, which meant some investors could be looking to lock in some profits at this level.
"Many investors are closing their positions to be flat into the New Year," a Milan-based trader said. "There's very little interest in opening new positions."
Central Markets senior broker Joe Neighbour said there were still some traders looking to use declines in the equity market to buy stocks on the cheap ahead of a possible rally in January, but on the whole investors were not taking on big positions.
"If there are profits to be had, we'll be looking to take them off the table. The dip buyers still seem to be there to look to take the market back up but we'll be looking to keep flat as we go into the new year," he said.
Reuters
