Inflation fears pound Europe stocks

European shares yesterday posted their biggest daily points loss since August last year on inflation fears, while a downbeat report from food group Danone fuelled worries about earnings.

Miners were among the biggest losers, with Rio Tinto and Anglo American rattled by a profit warning from Australia's Newcrest Mining and fresh worries that a two-year bull market could come to an end.

Heavily-weighted energy stocks added to market woes. Royal Dutch Shell and Total fell in step with oil prices after US inventory data showed that high energy prices were continuing to prompt consumers to cut back on fuel.

The pan-European FTSEurofirst 300 index shed 1.66 per cent or 19.76 points to end at 1,172.70 points, a closing low last seen on August 30. The figure represents the biggest daily points fall since August 6 last year.

Markets took a turn for the worse after a report on Tuesday showed last month's US producer price index had risen 1.9 per cent, the biggest gain in more than 15 years, and that core PPI, excluding volatile food and energy prices, had also risen by a larger-than-expected 0.3-per cent.

Top European indexes have fallen around five per cent from three and a half year highs hit two weeks ago. Hawkish comments from the Federal Reserve have rekindled worries that inflationary pressures stoked by high energy prices could force the US central bank to increase the pace of monetary tightening.

But fears among investors that the move could smother growth in the world's largest economy may be exaggerated, some observers said.

"The Fed will continue to tighten rates, but it will assess what to do next by looking at economic data," said economist Valerie Plagnol at CM-CIC Securities. "The Fed will stay true to its line of conduct: assess the impact of decisions on the economy before deciding to move ahead... (and) avoid any major shock in the financial system."

The Fed's latest Beige Book on regional economic conditions will be scoured for comments on how the US economy is faring in the face of higher interest rates and energy prices.

Back in Europe, the oils-rich FTSE 100 index tumbled 1.8 per cent or 96.1 points to 5,167.8 in London, while Paris's CAC 40 shed 1.9 per cent and Frankfurt's DAX finished 2.05 per cent weaker.

Danone was among the region's biggest decliners, knocked 2.4 per cent lower after the French food group shifted its profitability target to the lower end of its previous range.

This and disappointing earnings updates from Intel and Honeywell in the United States raised concerns about companies' revenue growth in the coming quarters.

In addition, a weaker outlook from US Cooper Tire & Rubber and a downbeat column on the sector in the Financial Times pounded European tyre makers. Germany's Continental shed 3.7 per cent.

Only one in 12 European stocks closed higher. Dutch chemicals group Akzo Nobel was one of them, gaining one per cent after posting third-quarter core profit at the top end of analysts' expectations and repeating its full-year outlook. (Reuters)

Sanofi-Synthelabo also stood out in a mixed pharmaceuticals sector. Sanofi and rivals such as GlaxoSmithKline are working to develop a vaccine against the deadly bird flu virus, and dealers say the company could benefit from governments' plans for mass vaccination.