Stocks in Europe initially rose, buoyed by a stronger finish from U.S. stocks, but these gains quickly evaporated following the release of French industrial output and German economic growth figures.

Investors also gained little cheer from the decision on Thursday by the European Central Bank's policy-making council to leave euro zone key interest rates unchanged at 3.0 percent.

"European stocks continue to defy the laws of economic gravity," said David Brown, chief European economist at Bear Stearns in London.

He said gathering evidence of a looming euro zone recession had been ignored for too long by stock markets and this could result in a snap back in prices.

"It is like pulling on an elasticated string. Too many people have been grasping at economic growth straws," he said.

In early trade the FTSE Eurotop 300 index FTEU3) was off 0.18 percent and the Dow Jones STOXX .STOXX) index was down 0.11 percent. The Dow Jones Euro STOXX 50 index .STOXX50E of euro zone blue chips was down 0.27 percent.

Recession concerns were rekindled after Germany's Ifo economics institute said its West German business climate index for January fell to 91.1 versus 91.4 a month earlier. Some analysts had been expecting a modest improvement.

Also, the Bundesbank said German fourth quarter 1998 GDP contracted 0.4 percent versus the previous quarter.

"Looking at these German figures, we're halfway to technical recession," said Brown.

French industrial production, excluding construction, fell 1.6 percent in December from the previous month versus a 0.1 percent rise in November. Output was 2.4 percent higher in the three months through December than a year earlier.

Wall Street's Dow Jones index closed up 1.12 percent on Thursday at 9,298.63. The technology-heavy NASDAQ Composite lagged blue chip gains, finishing up 0.5 percent. Globex traded S&P; index futures were off 0.40 point by 0950 GMT.

Meanwhile, the dollar continued its steady rise against the yen trading just under the 120 yen level in the European session, up around four percent this week.

The dollar was supported by a Kyodo news agency report quoting an international financial source saying the Group of Seven finance ministers meeting in Bonn this weekend would likely endorse the recent weakening of the yen against the dollar to bolster Japan's economic recovery.

Overnight Asian markets slipped a little, with the Nikkei 225 index in Japan closing 0.3 percent down and Hong Kong's Hang Seng index down 1.6 percent.

U.S. January consumer prices and CPI data are scheduled for 1330 GMT.

Among a dusting of major corporates reporting on Friday, British mortgage bank Abbey National fell 4.9 percent after it unveiled unexciting full year results. Its 1998 earnings rose 19 percent to 1.52 billion pounds, in-line with analyst forecasts.

In Germany, Nauseam was up around one percent after the German telecopy and engineering group reported a doubling of its net profit in 1998 to 630 million euro ($708.5 million).

German auto maker BMW A slipped 1.0 percent following comments made by Ford Motor Co. chief executive Jackets Maser overnight that his firm was focusing on boosting its existing brands rather than acquiring other companies.