European shares closed lower yesterday as investors fretted over the risks to the region’s economic recovery from an auto-emissions scandal at Volkswagen .

The declines brought European indexes close to their 2015 lows and came as concern about global growth and apprehension about a speech by US Federal Reserve Chair Janet Yellen sent Wall Street into the red. The eurozone’s blue-chip Euro STOXX 50 index ended down two per cent at 3,019,34 points. The pan-European FTSEurofirst 300 index fell 2.15 per cent, both reaching their lowest level since early January.

European shares have been losing ground since mid-April and fell sharply this summer after a rout in Chinese markets. A recovery followed but was soon wiped out by uncertainty over the Fed’s rate policy and now the car emissions scandal.

“There is no time for investors to catch their breath in this market. The auto story is causing a lot of pain,” said Andrea Cuturi, Partner at asset manager Anthilia Capital.

“Volkswagen is just a component, albeit important, of Germany’s GDP, and I believe it won’t derail the recovery. But if markets stay at these levels for a few more days I would close my positions,” he said.

Volkswagen admitted deceiving US regulators about how much its diesel cars pollute. The scandal has rocked Germany, and analysts warn it could develop into the biggest threat to Europe’s largest economy. The car maker faces penalties of up to $18 billion.

Germany’s transport minister said yesterday emissions manipulations by Volkswagen took place in Europe, not just in the United States, and that random tests would be conducted on cars made by other manufacturers.

The Euro STOXX Auto & Parts index fell 3.3 per cent amid talk emission problems might not be confined to Volkswagen. This week the auto index has lost roughly €40 billion in market value.

BWM dropped 5.1 per cent after a report in Auto Bild said some of its diesel cars were found to exceed emissions standards. BWM said there had been no manipulation and it was unaware of tests cited by the German magazine.

“BMW’s share price reactions shows how nervous the investment community is with respect to diesel engines, compliance and future regulation,” said Arndt Ellinghorst, head of Automotive Research at Evercore ISI. “Thank you, VW.”

However, Volkswagen shares - which had closed up 5.2 per cent on Wednesday – advanced another 0.6 per cent as investors took the resignation of CEO Martin Winterkorn as a sign the company would tackle the problem. The stock lost about a third of its value in the previous sessions.

“They’ve kicked out the CEO. The company and its shares should be able to stabilise,” said Clairinvest fund manager Ion-Marc Valahu.

The European basic resources index was down 3.6 per cent while the oil and gas index fell 2.8 per cent, reflecting concerns about economic weakness in China and elsewhere.

Shares in Schindler fell 6.8 per cent after two Chinese managers of the elevator company were detained for questioning, in a case linked to possible embezzlement and acceptance of bribes.

Shares in Monte dei Paschi rose 4.5 per cent after it reached a settlement with Japan’s Nomura to close a loss-making derivative trade, boosting the Italian lender’s chances of finding a buyer.

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