European stocks tumble on tame data

European shares tumbled yesterday as weaker than expected US jobs figures and data showing that the US service sector grew much more slowly in July than in June ignited worries over the health of the world's biggest economy.

A sharp drop in crude oil prices weighed on the energy sector yesterday, also hit by a downgrade from Citigroup. Total shed 2.4 per cent, BP dropped 1.5 per cent and Royal Dutch Shell fell 1.3 per cent.

The pan-European FTSEurofirst 300 index closed 1.29 per cent lower, at 1,517.16 points to end a rollercoaster week 0.2 per cent down on last Friday. But it is still up 2.3 per cent on the year.

"The weak (US) data fuels worries on the impact that it could have on consumer spending," says Kate Warne, strategist at Edward Jones, in St Louis.

"It could also worsen the situation in the housing market. Part of why we haven't seen the problems spread much from the sub-prime (mortgage) market to the broader housing market is because jobs growth has been strong, and for most people, if they have a job they can make mortgage payments," she said.

"But it may be less of a negative signal than what the market seems to think. If you look at why the data was weaker than expected, it is due to government jobs being down, so this may be a misleading signal as the figures were not in fact incredibly weak," Ms Warne said. "But we're at a time where investors are skittish. Any negative news is going to be jumped on." In addition to the jobs data the US Institute for Supply Management's services index fell to 55.8 last month from 60.7 in June, well below forecasts for a drop to 59.0. A number above 50 indicates growth.

The services sector represents about 80 per cent of US economic activity, including businesses like restaurants, hotels, banks and airlines.

The data came minutes after the report that showed US employers boosted payrolls in July at the slowest pace since February, adding 92,000 jobs as the national unemployment rate ticked up to its highest level since the beginning of the year.

The consensus forecast of economists in a Reuters poll was for 130,000 new jobs in July.

"A lot of people had bought into the idea that the first quarter was the bottom in the US and now you've had the ISM coming down, weaker consumption in the GDP release, and softer jobs growth," said BNP Paribas economist Dominic Brian.

"We've always been pretty downbeat on the US, thinking the sub-prime would be a bigger problem for the economy than most people felt, so we're much less surprised by what's going on than a lot of people."

Around Europe, Germany's DAX index ended down 1.3 per cent, UK's FTSE 100 index down 1.2 per cent and France's CAC 40 down 1.5 per cent.

Worries over the crisis in the US sub-prime mortgage market continued to rattle investors yesterday, dragging down shares in the banking and financial sectors.