LONDON (MarketWatch) -- European shares weakened on the first day of the fourth quarter as economic data continued to disappoint, although deal making helped to cushion downside after Cisco Systems offered to buy Norway's Tandberg. The pan-European Dow Jones Stoxx 600 index (ST:SXXP 241.44, -1.03, -0.43%) traded down 0.5% to 241.22. Wednesday's close saw the Stoxx 600 index record its best quarterly gains for almost ten years although stocks ended lower on the day after some weak regional PMI data from the U.S. See story about Europe performance in third quarter. Weaker European economic data out Thursday included a drop in German retail sales, a rise in the euro-zone unemployment rate and a decline in U.K. manufacturing activity. See full story. There could be some more room for disappointment on U.S. economic data Thursday, with U.S. ISM figures due out ahead of a key jobs data report scheduled for Friday. "I'm nervous," said Andrew Lynch, fund manger at Schroder Investment Management. He noted that U.S. growth is in 2010 is likely to be weak as consumers continue to pay back debt. "So GDP is likely to be sluggish, which isn't really factored in to estimates at these levels," he said. Of regional indexes, the German DAX index (DX:DAX 5,649, -25.63, -0.45%) declined 0.6% to 5,638.53, the French CAC-40 index (FR:PX1 3,773, -22.74, -0.60%) declined 0.8% to 3,766.89 and the U.K. FTSE 100 index (UK:UKX 5,104, -29.51, -0.58%) slipped 0.7% to 5,099.28. Asian equity markets ended mostly lower as investors eyed the latest Tankan survey reading from Japan, while U.S. stock futures were weak. See Asia Markets. See Indications. Still, deal-making and speculation provided a prop in Europe, with Tandberg (NO:TAA 154.00, +15.70, +11.35%) shares up 11.3% to 153.90 Norwegian Kronor after Cisco Systems (CSCO 23.33, -0.21, -0.89%) , the networking-equipment giant, agreed to acquire the Oslo producer of video-communications technology, for $3 billion. Cisco said it will pay 153.5 Norwegian kroner a share, indicating that some in the market believe another bid will emerge. The Wall Street Journal reported in July that private-equity firm Silver Lake was interested. See full story. Legal & General (UK:LGEN 90.35, +2.45, +2.78%) shares rose 2.7% in London on Thursday amid speculation that it could be in line for a takeover bid from National Australia Bank. See London Markets. Also in the insurance sector, shares of reinsurer Munich Re (DE:MUV2 112.03, +2.73, +2.50%) rose 3.4%. It will resume its suspended share buyback program and repurchase up to 1 billion euros ($1.46 billion) of stock. Fiat (IT:F 9.43, +0.64, +7.28%) shares jumped 7% to 9.41 euros in Milan. Morgan Stanley analysts said in a note that it sees 93% upside to its new 16.80 euros target price for the Italian auto maker following its Chrysler deal. It lifted the price target from 8.30 euros. The new target "gives the stock a superior risk/reward profile versus the average European auto stock and the highest absolute upside of all stocks under our coverage." The broker added: "Fiat's cooperation with Chrysler Group offers billions of euros of value optionality to Fiat shareholders that we do not think is reflected in the price," the broker said. It rates the stock at overweight. BAE Systems (UK:BA. 332.00, -17.20, -4.93%) dropped 5% after the Serious Fraud Office said it will prosecute the U.K. arms giant for overseas corruption offenses.

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