European stocks in biggest two-day fall in 3 1/2 years

European shares slumped for the fourth day in a row yesterday to close about one per cent lower on uncertainty over US interest rates rises and as mining issues tumbled following a sell-off in commodity markets.

The DJ Stoxx basic resources index shed 5.3 per cent, while shares in BP and Total took a beating as US crude oil prices lost three per cent to around $70 a barrel.

The pan-European FTSEurofirst index of 300 leading shares fell 1.3 per cent to end near a two-month low at 1,345.3 points, down from a near five-year high of 1,407.5 last week. The index is still up 5.5 per cent for this year.

The FTSEurofirst index fell 29 points on Friday, and yesterday's loss of about 18 points made the two-day fall the worst points fall in two consecutive sessions since September 2002.

"Clearly what days like today do is highlight the amount of financial speculation that is maybe underlying some of the moves in the market," said Neil Dwane, chief investment officer for Europe at RCM.

"We still think global growth is okay; China and emerging markets are okay. And therefore, this is a sort-of a healthy setback."

The FTSEurofirst index fell as much as 2.1 per cent before paring losses. The Dow was flat towards the close of European markets and supported European stocks. Volumes were heavy with more than three billion shares traded compared with average daily volumes of about 2.5 billion.

The dollar posted broad gains after having fallen to one-year lows against the euro earlier.

Mr Dwane said European stock markets were trading at price to earnings ratios of about 13 to 14 times and still offered "reasonably good value" on the back of strong corporate earnings.

Mining issues fell as industrial and base metal prices suffered sharp losses following a rally that had taken many commodities to around record highs.

Anglo American shed 5.9 per cent, Rio Tinto lost 4.8 per cent and BHP Billiton lost 5.6 per cent.