European shares ended yesterday in a two-week trough as a warning by Electrolux that soaring commodities prices would cap its profits rippled through the market, pressuring car makers and other manufacturers.
Oil majors also suffered after Deutsche Bank lowered its rating on the global sector to "neutral" and as comments from a US government source saying Washington was considering releasing crude from the US petroleum reserve sent oil prices retreating after five consecutive sessions of strong gains.
Royal Dutch/Shell was hit further as Commerzbank downgraded the stock to "underweight" a day after the Anglo-Dutch group's strategy presentation disappointed investors. Its shares shed 2.7 per cent in London.
Barclays was another sore spot, down 4.5 per cent after the British bank said it was in talks to take a majority stake in Absa, a South African retail bank worth $6 billion.
The FTSE Eurotop 300 index of pan-European blue chips shed 0.7 per cent to end at 989.5 points, while the narrower DJ Euro Stoxx 50 index fell 0.9 per cent to 2,735.5 points.
European equity markets have rebounded about six per cent from a year trough in mid-August.
But concern about volatile oil prices and the pace of US monetary tightening and signs that growth in the world's biggest economy may be flattening out make it difficult for investors to plan their next move, strategists said.
"All the indications are that a globally synchronised loss of momentum is getting underway, a development likely to be accentuated by the rest of the world's continued dependency upon the US locomotive's pulling power," said Ian Harwood, economist at Dresdner Kleinwort Wasserstein.
Against a background of slowing demand, there are worries that higher raw material costs cannot be passed onto consumers and that companies will see their profit margins squeezed, market watchers said.
Electrolux led European blue chips lower after the world's biggest maker of home appliances warned that soaring steel prices would hit its second-half profits to the tune of 500 million crowns ($68 million). Its shares fell 8.1 per cent.
Italian rival Merloni Ellettrodomestici shed 3.8 per cent.
Fears about higher commodity prices were also acute in the autos sector, with car parts maker Valeo off 5.5 per cent as Credit Suisse First Boston downgraded the stock to "neutral", citing fears of higher costs.
Car maker PSA Peugeot Citroen also slipped 2.9 per cent after a guidance update from the company at the Paris car show failed to match the market's bullish expectations.
"We've had Electrolux warning on profits today, which is a result of high steel prices," said one trader in Amsterdam. "We are now looking for other names that are also exposed. One of the sectors that will be hit is the car sector, obviously."
On the upside, shares in British tobacco firm Gallaher Group rose 3.2 per cent as dealers cited talk that Japan Tobacco was considering a European acquisition.
Gallaher declined to comment, and Japan Tobacco could not immediately be reached.
Dealers said Spain's Altadis was also mentioned as a possible target, but the talk was vague. Altadis nosed up 0.9 per cent to €27.
In New York, the blue-chip Dow Jones industrial average was 0.4 per cent lower at 10,070 points by 1616 GMT, while the Nasdaq Composite Index was up 0.25 percent to 1,890.4 points.