Mining, retail and financial stocks sent European bourses lower yesterday as investors feared that the era of low US interest rates, which fuelled a consumer boom, would end soon as economic recovery consolidates.
Tech stocks were also hammered after global semiconductor leader Intel doused enthusiasm with a disappointing outlook.
On a brighter note, French electronics group Thomson rose after reiterating its 2004 revenue and profit targets despite a weak dollar hitting its first-quarter sales.
Danone gained after the French food company posted a sharper-than-expected rise in first quarter revenue as more people bought its yoghurts, mineral water and biscuits.
But the broader economic picture dominated as news of stronger-than-expected US inflation deepened fears the Federal Reserve will soon raise borrowing costs from 58-year lows.
The data followed Tuesday's higher-than-expected growth in US retail sales after a jump in March US payrolls.
"The market consensus among economists was that the Fed would probably raise rates in November or December, but now the market is factoring in an earlier increase," said Paul Donovan, global economist at UBS bank.
"We have a central case that the Fed will increase rates by 75 basis points this year, starting in August," Mr Donovan said.
With US rates currently at 1 per cent, such a hike would force investors to adjust share valuation models, revisit how returns from the bond and equity market compare, and gauge how a a rise would affect economic recovery and profits, Mr Donovan said.
Economy-sensitive sectors fell due to the prospect of higher rates dampening demand for goods like commodities, while more defensive areas such as food and drink edged higher.
Financials, which feel a chill when a rise in interest rates makes it more expensive for their customers to borrow money, were also weak as banks like Credit Suisse, ABN AMRO, UBS and BNP Paribas fell.
The FTSE Eurotop 300 index, which tracks Europe's top 300 shares, ended down 1.5 per cent at 1,008.43 points.
The pullback was broad-based, with some five issues falling for each one that rose, in volume that was heavier than average. The DJ Euro Stoxx 50 index fell 1.1 per cent to 2,856.61 points.
The Eurotop 300 remains up more than five per cent for the year and still within striking distance of its 20-month high of early March at 1,028.03 points.
Mining and steel stocks were hit by twin concerns of higher US rates and signs that China will cool its heady economic growth which has sucked in vast amounts of steel and metal to trigger rallies in commodity prices.