Phone stocks slid for two days in a row on concern that profit growth will slacken, led by Deutsche Telekom and Vodafone.

"There are big issues in this sector, such as increasing competition, " said Henk Potts, fund manager at Barclays Stockbrokers in London. "Growth is very, very difficult to come by, particularly in fixed lines but even in the mobile divisions."

Meanwhile, airline stocks pulled back after Thursday's jitters. "Passengers are battlehardened to this type of threat, " said Andrew Fitchie, a Collins Stewart analyst, in a note to investors. "There have been a number of threats and shocks over recent years, and demand has always recovered quickly."

Shares of British Airways fell 0.25p on Friday to 370p in London. EasyJet gained 3p to 417p. Ryanair shares dipped 20c to /7.24 in Dublin.

The Dow Jones Stoxx 600 index dropped 1% on the week on concerns over higher interest rates, having shed 5.6% of its value since its 2006 high reached on 9 May.

US Federal Reserve policymakers said "some inflation risks remain", raising speculation about higher interest rates. The eurozone, Britain and Denmark lifted rates the week before.

Vodafone, the world's biggest mobile phone firm, lost 1.8% to £1.10 on Friday after ABN Amro cut its recommendation to 'hold' from 'buy'. JP Morgan Chase also lowered its recommendation, citing price erosion in Germany, Italy and Britain.

Deutsche Telekom, whose shares had their biggest drop in over three years on Thursday after the company cut sales and earnings forecasts, declined another 3% on Friday to /10.84.

Analysts at UBS and Commerzbank cut their recommendations on the shares.

French tyre maker Michelin said it will raise prices by 6%-8% in October to offset higher raw material costs. The shares gained 2.3% to /47.48 in Paris.

Another French blue-chip, insurer AGF, also gained after reporting that first-half profit grew 33% to /1.02bn.

Adecco, the world's biggest temporary staffing company, fell to /65.5 after reporting that prices in its biggest market were under pressure.

Schroders, the 202-year-old London money manager, slumped 9.5% to 872p, its biggest decline since July 2002, even as first-half profit increased 9%. Assets under management overall fell to £122.3bn from £122.5bn over the six months.

"The funds under management have lost ground, while management has not announced any type of buybacks, " said Keith Bowman, analyst at Hargraves Lansdown.

"This adds acquisition risk to the share price."