Eurostocks hit fresh September low amid broad rout

European benchmarks slumped to fresh September lows yesterday as investors dumped stocks across the board, leaving no corner of the market untouched as doubts over US economic recovery deepen with no let-up in sight.

"Most investors are sitting like rabbits in front of the headlights, just frustrated and shocked by the market, hoping that the future will cancel out their losses," said Udo Becker, a trader at Munich private bank Merck Finck.

Europe's technology and telecom sectors visited levels last seen over five years ago, wiping nearly all the record gains racked up during the dotcom boom despite some late session bargain-hunting in Ericsson and Nokia.

Consumer cyclicals, industrials, retailers, insurers, banks and financials also hit fresh lows for the year amid unusually broad-based selling.

Blue chip fallers ranged from German-American car giant DiamlerChrysler, UK insurer CGNU, and media leader Vivendi Universal, to Spanish bank SCH and UK oil company Shell.

"There is a degree of panic as people run around a bit, trying to understand what's going on, and feeling they must take a decision here, whether to buy or sell," said Gary Dugan, global market strategist for JP Morgan Fleming, which oversees $600 billion.

Stocks have been falling since March as investors began to doubt that economic recovery would rescue profits anytime soon. This week's US consumer focused numbers fuelled the trend.

The market's drop has been led by techs and telecoms, two sectors where many companies have high debt and low demand.

The DJ Stoxx technology and telecoms indices are down just over 40 per cent so far this year, but investors yesterday showed how even defensives and cyclicals are being ditched too.

"We remain very cautious. In our asset allocation we are neutral between bonds and equities at these levels. It's too late to sell equities but we are sellers of some bonds," Dugan said.

At 1545 GMT, with only Frankfurt still officially trading, the pan-European blue chip FTSE Eurotop 300 index was down 2.48 per cent at 1,065 points, off its low for the day as Wall Street pared opening losses.

The Eurotop 300 sank four per cent at one point, its biggest intraday slide since September 20, and is heading for its weakest closed since September 25.

The benchmark is down 4.6 per cent for the week and 15.5 per cent for the year after two straight years of losses.

The Euro Stoxx 50 index shed 2.6 per cent. On Wall Street, the Dow Jones industrial average was off 0.86 per cent at 9,419 points, while the tech-studded Nasdaq Composite was down 0.19 per cent.

New York was rattled by news of a deadly car bomb near the US consulate in Karachi, Pakistan, more signs of weakness in US consumer confidence, and downgrades in wireless telecoms.

Dealers debated if investors were indeed throwing in the towel on stocks, a step some experts say is needed for the market to build a proper base before advancing, though there have only been two washouts in the past eight bear markets.

Experts warned that more losses were likely even though European share valuations are back down at their historic norm.

"It feels like capitulation, but people want to see us back to the September lows first, though people struggle to see what could be a catalyst to trigger a rebound from these levels," JP Morgan Fleming's Dugan said.

Last September, the US Federal Reserve was able to step in to cut interest rates to help stocks, but this time round, such monetary policy is not available, Dugan added.

Friday's trough in the Eurotop 300 is still nearly 10 per cent above the multi-year low of September 21, the day when Wall Street reopened after the attacks on the United States.

"Today has been different from the past few weeks as we have seen real capitulation in the market as every stock and every sector is down," said Khuram Chaudhry, a European strategist at Merrill Lynch.

"Up until now people have been asking when will the market bottom out, but now people are getting fearful and sentiment is becoming extreme," Chaudhry said.

Dealers now look to next week when there is the quarterly triple-witching or the expiry of stock index options and futures which can make for a rough ride.

"I am not quite sure if this the end of it all. I would not rule out the DAX testing 4,000 points next week because of the triple-witching," Merck Finck's Becker said.

European bourses were down about two per cent by midsession, but the slide accelerated on news that the closely-watched University of Michigan index of US consumer sentiment for June unexpectedly dropped to 90.8 points from 96.9 in May.

The data came a day after the US retail sales numbers for May also fell sharply, triggering a selloff in stocks that continued into Friday morning.

Consumer activity accounts for two-thirds of the US economy and any stumble would threaten its nascent recovery the world is depending on to revive corporate profits.

Some strategists said European shares will remain under a cloud until the problem of large debt at some technology and telecom companies is resolved.

Although the tech and telecom sectors have shrivelled, the region's heavyweight banking and financial sector has big exposure to their massive debt, said Clive McDonnell, a European strategist at Standard & Poor's.

More market pain was likely, he said. "People have been underestimating the negative impact their debt can have on banks, and it's their knock-on effect on banks that will have a big impact on the market. There will be a final capitulation," McDonnell said.