European shares were sharply down in late trade yesterday as news of a fresh Middle East bombing helped put paid to a tentative New York comeback after US profit warnings sent tech stocks reeling towards five-year lows.
Telecom gear maker Alcatel of France led the large cap tech decliners as investors looked ahead nervously to today's mid-year analyst update from Finnish peer Nokia, which also fell heavily.
Banks were in the wars too as Swiss bank CS Group slumped on growing lawsuit concerns after US peer Morgan Stanley posted its seventh straight quarterly fall in earnings, while Nordic giant Nordea slumped after a share placement.
Strategists said valuations had improved after four weeks of losses but many were not holding their breath that the current gloom over corporate earnings, economic recovery, monetary policy, and global security would lift quickly.
"European equities are undervalued but not undervalued enough to justify a sharp recovery in prices," said pan-European equities strategist Michael O'Sullivan at Commerzbank.
In the specific case of tech shares, the prognosis was gloomier still.
"In the worst case, there is still some way for European tech stocks to fall before they reach their fair value," said Robert Kerr, European equity strategist at Banc of America.
"The DJ Stoxx tech sector could lose a further third of its market capitalisation if the catalysts and bad news on the de-rating of the sector continue."
By 1651 GMT, with only Frankfurt still officially trading, the FTSE Eurotop 300 index of top European blue chips was off by 1.7 per cent, as falling stocks outpaced decliners by five-to-one.
The benchmark is down almost 15 per cent so far this year but was still above the late-September lows visited last week.
The Euro Stoxx 50 index fell two per cent. The DJ Stoxx index of European technology shares eased 3.5 per cent and led the sectoral loser board, as it hurtled towards last week's depressed levels - last seen in February 1997.
But also hit were telecoms, media, insurance, and banking, which shed about two per cent each.
In New York, the Dow Jones industrial average fell 0.4 per cent, having earlier edged higher, while the tech-laden Nasdaq Composite shed 1.1 per cent.
Weighing on Europe's tech sector were overnight profit warnings from US chipmaker AMD and computer maker Apple Computer, and a sales warning from telecom gear maker Ciena Corp., which dashed hopes of a quick earnings recovery.
Adding to the gloom was news the US Department of Justice had subpoenaed DRAM memory chip maker Micron for alleged anti-competitive practices. South Korea's Samsung Electronics said it had received a subpoena too.
German chip maker Infineon Technologies said it did not know if it was also a target of the probe, but its shares fell 4.6 per cent. Franco-Italian rival STMicroelectronics fell 1.5 per cent and UK chip designer ARM Holdings lost 5.4 per cent.
Ciena peer Alcatel, meanwhile, fell 6.34 per cent, and Nokia eased 5.9 per cent.
Among weaker financials, CS Group fell 3.6 per cent as its shares extended their slide from Tuesday amid the threat of lawsuits over the banks' ties to apartheid-era South Africa.
Nordea, the Nordic region's biggest bank, sank 5.7 per cent on news major shareholder - unlisted Tryg i Danmark - is to sell half its 6.3 per cent stake.
Elsewhere, market talk of accounting problems at Scottish Power's US division PacifiCorp sent the shares tumbling by over eight per cent just before the market closed.
Scottish Power said it saw no reason for the fall.
France Telecom also slumped eight per cent as investors grew impatient for an expected refinancing agreement with estranged, cash-strapped German partner MobilCom.
Bright spots were few and far between. Gucci added 1.2 per cent despite a deeper-than-expected slump in the Italian fashion house's first-quarter earnings and news it had no plans to buy back shares after previously raising the possibility.
Investors instead warmed to the world's third-largest luxury goods group's unchanged 2002 outlook and revilitalised Yves Saint Laurent unit.