FRANKFURT -- Bourses calmed after yesterday's euro-fed rally, retreating slightly, though strong demand was lurking.

Business software giant

SAP

(SAP) - Get Report

served as the sedative, stunning investors by reporting that 1998 pretax profit rose 15%, short of expectations. In Frankfurt, SAP free-fell nearly 20% on the open, and was last down 68 euros, or 17.4%, at 322.

But despite today's SAP bombshell, a cruel reminder of the shaky profit outlook across the Continent, the general market was holding up well. Many had expected hefty profit-taking after most euroland markets yesterday rocketed 4%-6% higher.

In Frankfurt, the

Xetra Dax

was down 50 points, or 1%, at 5240. SAP's loss accounted for nearly the whole loss. In Paris the

CAC

was up 5 points at 4153. London, which skipped the euro party yesterday to end slightly lower, was holding firm. The

FTSE

was up 1 at 5880.

Although most investors and traders were whacked by SAP's shocking news, there were whispers in the market that a lucky few might have been aware bad news was coming. While the Dax rocketed 5% yesterday, SAP dropped around 4%. And some traders noted that SAP ADRs slipped 6% Dec. 31 in New York. Frankfurt was closed that day. One trader quipped: "If you are a suspicious type, you might wonder about these things."

In Paris,

Cap Gemini

suffered spillover weakness from SAP, and was down 1.6%.

In London,

Vodaphone

(VOD) - Get Report

was up 2.4% after a report that it was bidding $45 billion for

AirTouch Communications

(ATI) - Get Report

in an effort to top a bid by

Bell Atlantic

(BEL)

. Other telecoms were buoyed by the news, including

British Telecom

(BTY)

, up 2%.

Banks and other financial names again were among the best performers, especially names with a French ring to them.

Paribas

was up 2.8% and

Societe Generale

up 2.5%.

And auto shares were generally higher on widespread expectations of further mergers in Europe. Two names thought to be prime candidates were among the winners. In Stockholm,

Volvo

(VOLVY)

was up 8.8%, for a two-day gain of 16.7%, and in Milan,

Fiat

(FIA)

was up 1.9%.

Byron Gilliam, equities trader at

Salomon Smith Barney

in Frankfurt, said European stock markets appear to be consolidating yesterday's gains.

"I think we go higher from here," he said. "This is a liquidity-driven market and we have tons of liquidity."

But others were not so sure, fretting that SAP might be the tip of the profit-disappointment iceberg. They also fear stocks will be hurt by slowing economies and dollar weakness. Plum Shipton, European equities strategist at

Merrill Lynch

in London, still advises caution and a defensive strategy.

"We do continue to believe there is bad news out there," she said.