European shares suffer biggest fall since October 2002

European shares suffered their biggest points fall since October 2002 to close at a more than three-month low yesterday as strong US inflation data sparked fresh fears over rising interest rates.

The session's late slide wiped more than €180 billion off the value of Europe's top 300 companies. Shares have lost seven per cent since last Tuesday.

Auto stocks were the worst hit as exporters were hurt by dollar weakness, although the greenback rebounded on the inflation data and the French Finance Minister saying the euro must not be allowed to strengthen too much.

The FTSEurofirst 300 index of top European shares unofficially closed 2.6 per cent or 35 points weaker at 1,312.21 points.

Britain's FTSE 100 lost 2.9 per cent, Germany's DAX shed 3.4 per cent and France's CAC 40 fell 3.2 per cent.

In New York the Dow Jones Industrial average was trading 1.4 per cent down at 11,255.50.

While investors are worried, they are also staying pragmatic.

"There's certainly a lot of caution and bearishness around," said SVM Asset Management managing director, Colin McLean, which has $1 billion under management.

"And while there may be more losses to come in the next few sessions, the scale and pace of the moves in the last week are no different to other setbacks we've seen in the past year or so."

The market had been trading flat before data showed headline US consumer prices rose by 0.6 per cent in April with core prices up an unexpectedly strong 0.3 per cent, fuelling worries the Federal Reserve will continue tightening monetary policy.

Wall Street economists had forecast a 0.5 per cent rise in consumer prices with a 0.2 per cent rise in the core figure, which strips out volatile food and energy costs.

The FTSEurofirst, which is still up three per cent in 2006, had hit a near five-year high earlier this month on the back of bullish earnings and takeover activity before the sell-off took hold.

Shares lost 0.6 per cent last Wednesday, 0.4 per cent on Thursday, 2.1 per cent on Friday and 1.3 per cent on Monday with inflation worries contrasting with a sell-off in commodity prices which hit high-flying mining shares.

The benchmark nudged up 0.2 per cent on Tuesday, supported by earnings.

Miners were the second biggest fallers after autos with the DJ Stoxx basic resources sector slipping 3.6 per cent as metals succumbed to profit-taking.