Inflation and interest rate worries came to haunt European shares again yesterday, pushing stock indexes to their worst close in nearly two weeks, with mining and technology stocks leading the march down.
Heavily weighted energy stocks such as Total fuelled the market's selling momentum, as oil prices lingered around three- and-a-half-month lows, while Nokia slid more than two per cent as speculation persisted that the world's biggest handset maker may lower its earnings forecasts.
The FTSEurofirst 300 index of leading European shares shed 1.1 per cent to 1,364.01 points - its lowest close since August 25 - accelerating losses after revised US data showed worker compensation up much more than initially thought.
The report revived worries among investors of a worst-case scenario where the Federal Reserve would be forced to continue raising interest rates just at a time when economic data shows the world's biggest economy is slowing down.
A separate US economic report showing the pace of growth in the US service sector had risen in August, and inflationary pressures had eased, did little to ease investors' worries.
"Will growth slow too much or will the Fed be forced to tighten further? The model's expected return suggests that the Goldilocks outcome is unlikely to occur," said Richard Bernstein, chief investment strategist at Merrill Lynch.
There were also new rate worries this side of the Atlantic, with traders citing new fears that the Bank of England may, contrary to expectations, tighten borrowing costs today after its two-day meeting.
London's FTSE 100 index shed 0.9 per cent, while Paris's CAC 40 and Frankfurt's DAX lost 1.1 per cent and 1.2 per cent, respectively. The Swiss Market Index was down 0.65 per cent.
Miners were by far the biggest losers in the region, with Anglo American off 2.8 per cent despite firm copper and gold prices as dealers cited worries that slowing economic growth would lead to lower demand for metals.
Some dealers also cited comments by IMF chief economist Raghuram Rajan at a news conference that metal markets appeared to be fairly valued.
Other standout movers included Dexia, down 2.7 per cent after the French-Belgian financial services group unveiled the terms of a 1.2 billion euro share issue, which will partly fund its acquisition of Turkey's DenizBank.
On the upside, Dutch chip equipment maker ASML gained 2.3 per cent after raising its third-quarter bookings to 93 new orders from its previous outlook for more than 62.
French bank Credit Agricole added 0.3 per cent after posting a near 34 per cent rise in second-quarter net profit that beat analysts' forecasts.