European stock markets close sharply lower

European stock markets closed sharply lower yesterday as weak US economic and company data stoked concerns that economic growth may be slowing, dealers said.

They said news of much weaker-than-expected US housing starts dented hopes the troubled sector was on the mend while a downturn in German investor confidence and a spike in British inflation added to the gloom.

A sharp profit-warning from US computer giant H-P was an unwelcome reality check for those betting that strong company results herald a good year ahead while investors kept a wary eye on tracked the eurozone debt crisis.

In London, the FTSE 100 index of leading shares closed down 1.06 per cent at 5,861.00 points. In Frankfurt, the DAX fell 1.77 per cent to 7,256.65 points and in Paris the CAC 40 lost 1.21 per cent to 3,941.58 points.

In Paris, Arnaud de Champvallier at Turgot Asset Management said the poor US housing data had hit sentiment after a slight recovery earlier in the day.

“We are still in wait-and-see mode. Investors are wondering whether the market can resume its upturn after the consolidation of recent days,” he said.Dealers said sentiment in London was hit after inflation soared to 4.5 per cent in April from 4.0 per cent last March to a two-and-a-half-year high, stoking the prospect of an interest rate hike from the Bank of England.Analysts had forecast April inflation at 4.2 per cent. The outcome “increases the pressure on the ... the Bank of England to act sooner rather than later with respect to a rise in interest rates,” said analyst Michael Hewson at CMC Markets. Elsewhere in Europe, Amsterdam dropped 1.30 per cent, Brussels was off 1.14 per cent, Madrid slipped 0.56 per cent, Milan dropped 1.27 per cent and Swiss stocks fell 1.03 per cent.

In New York, the blue-chip Dow Jones Industrial Average was down 1.05 per cent at around 1615 GMT while the high-tech Nasdaq Composite fell 0.63 per cent.

Dealers said investors were disappointed by figures showing new-home starts slumped 10.6 per cent in April while a profit-warning from H-P undercut hopes that companies can continue to chalk up strong earnings.

In Asia, stock markets closed little changed.

Tokyo edged up 0.09 per cent and Hong Kong fell 0.26 per cent while Shanghai rose 0.13 per cent, with Sydney up 0.79 per cent.