LONDON, Aug 27: European stock markets pared their sharp gains after weak US consumer confidence data offset the effect of a robust durable goods report and as short-selling in Sweden’s Ericsson picked up apace.

The US Conference Board said its consumer confidence index fell to a nine-month low of 93.5 in August, after slumping to a revised 97.4 in July from 106.3 in June, highlighting the weak state of US consumer spending, which accounts for two-thirds of the US economy.

That sent stocks back on a downward trajectory as investors again fretted over the outlook for the world’s biggest economy after earlier data had showed durable goods orders rose 8.7 percent in July, well ahead of expectations of a 1.2 per cent increase in orders after a shock 4.5 per cent drop in June.

This is a blow: European equities have had a good run recently and if we continue to get poor data like this then the rally begins to look unsustainable, said Ken Wattret, chief Euroland economist at BNP Paribas.

This poor consumer confidence data is a surprise, especially in the light of the much milder decline in the recent Michigan survey and the rally in US equity markets over the past month.

The FTSE Eurotop 300 index was up 0.9 per cent at 990 points, having earlier been almost three per cent higher and broadly recovered by some 15 per cent since hitting five-year lows on July 24.

The narrower Euro Stoxx 50 index gained two per cent to 2,825 points.

Earlier, US durable goods orders posted their largest increase in nine months, boosted by record gains in demand for machinery and non-defense capital goods.

This is a very good recovery from the downturn we saw in June and is bound to put fears of a double-dip recession back on hold, said Bear Stearns economist David Brown.

But some investors gave short-shrift to the idea that a pickup in business capital spending might finally be at hand.

I don’t think the market is going to give much credit to a single statistic like this, said Jeremy Podger, pan-European fund manager at Investec Asset Management,

Such a view found some resonance on Wall Street, where the tech-heavy Nasdaq Composite turned negative even before the consumer confidence data was published.

The Dow Jones Industrial Average index was down 0.55 per cent and the Nasdaq slipped 1.7 per cent.

Shares in Swedish telecom equipment maker Ericsson slipped six per cent on continued short-selling by hedge funds ahead of Thursday’s Stockholm deadline for a massive rights issue.

We did some business in Ericsson today, selling the ordinary shares and picking up the rights for various institutions, said one pan-European dealer.

The volumes are so large because the prices are low, this means the professional shorts can get in and out of the stock fast and have some fun, he said, while adding that he expected the stock to rally sharply once the rights issue was completed.

Investors in Ericsson have had a volatile ride recently. The shares have tumbled by more than 30 per cent since last Thursday, having rocketed by 94 per cent from the previous Monday when the stock hit a 10-year low.—Reuters