European shares slumped yesterday, sharply extending losses at the end of the trading day on news that a Malaysian passenger plane had crashed in Ukraine near the Russian border.

The crash revived investors' fears over tensions between Ukraine and Russia. The EU and US have slapped new sanctions on Russia over what Washington says is Moscow's failure to curb violence in Ukraine.

The pan-European FTSEurofirst 300 index closed down by one per cent at 1,363.19 points.

Germany's DAX, which hit a record high of 10,050.98 points in late June, fell 1.1 per cent to 9,753.88 points while France's CAC declined by 1.2 per cent to 4,316.12 points.

A Ukrainian Interior Ministry official was quoted by the Interfax-Ukraine news agency as saying that the Malaysian airliner had been shot down. The aircraft, which other sources said was a Boeing 777 flying from Amsterdam to Kuala Lumpur, came down near the city of Donetsk, stronghold of pro-Russian rebels, Ukrainian official Anton Gerashchenko said, adding that it was hit by a ground-to-air missile.

Plane crash expected to add more negative pressure and volatility to European stock markets today

“If it really has been shot down, you could have a serious sell-off,” said Darren Courtney-Cook, head of trading at Central Markets Investment Management.

Airline stocks fell, with Air France KLM retreating 1.5 per cent while Lufthansa lost 2.4 per cent. The Madrid-listed shares of International Consolidated Airlines Group – the owner of British Airways and Iberia – fell 3.4 per cent.

Clairinvest fund manager Ion-Marc Valahu expected the Malaysian plane crash to add more negative pressure and volatility to the European stock markets today.

In a sign of heightened investors' fears over the situation, the Euro Stoxx 50 Volatility Index closed up by 19.2 per cent at 17.65 points.

“We'll get more volatility and pressure to the downside,” said Valahu.