"At the moment it is normal consolidation," said Petra Kerssenbrock, technical analyst at Commerzbank. "We had a very strong move two weeks which led us up to the resistance in the area 2,600 to 2,611 and that is the resistance that I am really looking at ... We could make a first attempt this week, but I doubt that it would be successful."
Tech stocks were the worst performers on Tuesday, after Goldman Sachs removed German chip maker Infineon from its Pan-Europe Conviction Buy List following strong recent share price performance. Energy stocks also lagged, as Brent crude oil fell below $110 on concerns about the protracted US budget negotiations to avoid a "fiscal cliff" of spending cuts and tax increases.
Most investors expect a compromise, although markets are likely to remain on edge until it is reached. "It is in the interests of nobody - neither the Democrats, nor the Republicans - to see the US slumping into recession again because politicians will be held responsible," said Sylvain Goyon, head of equity market strategy at Natixis. As long as a solution is found, Goyon expects European equity markets to enjoy a strong year-end, forecasting that the French CAC 40 index could add 4-5 percent more by then.
"Everyone who has missed the summer rally is now tempted, especially with the year-end approaching, to bet on this asset class," he said. FTSEurofirst 300 has posted gains in 12 out of the last 15 Decembers in a "Santa rally" that strategists explain by investors seeking to boost their profits for the year. Natixis recommends playing further market gains through "growth" stocks which can increase their earnings even a time of economic stagnation, as seen in Europe.