European shares fell yesterday on concern over the pace of US monetary tightening, while losses among technology heavyweights such as Ericsson also weighed.
Retailers added to market woes after British fashion retailer Next trimmed its full-year profit forecast, while a profit warning from Eastman Chemical knocked Bayer and other chemical stocks across Europe.
The FTSEurofirst 300 index of leading pan-European shares ended down 0.7 per cent to 1,043.7 points, retreating from Tuesday's 2-1/2 year highs after hawkish comments from the Federal Reserve spooked investors.
The Fed said in minutes from a December meeting, released late on Tuesday, that interest rates remained too low to contain inflation. The comments stoked fears of more aggressive US interest rate rises that could smother economic growth.
Valerie Plagnol, chief economist at CM-CIC Securities in Paris, said the comments raised the prospect of a new quarter-point US interest rate rise at the start of next month.
But she added that the US central bank would need to wait for economic data for the early part of the year before it can decide whether or not to intensify its tightening cycle.
Friday's US employment report is seen as a key shaper of Fed thinking ahead of its rate-setting meeting next month.
The DJ Euro Stoxx 50 index shed 0.8 per cent to 2,947.19 points.
Sentiment was further pounded by a survey showing business sentiment in Asia had deteriorated to a greater degree than the consensus believes, which strategists said could hurt European stocks, particularly in sectors such as basic resources, industrials and luxury consumer goods.
"Markets are driven by surprises, and the survey suggests a negative one could be on the way for East Asia," Merrill Lynch said in a client note.
Technology issues were a sore spot, with Ericsson, Philips and Micronas losing between 1.8 and 2.8 per cent after US microchip maker Xilinx warned on quarterly sales, citing weaker-than-expected December orders.
Chemicals weighed after Eastman Chemicals said that fourth-quarter profit would fall short of expectations due to higher raw material costs, sending Clariant 1.3 per cent lower, and Dulux paint maker ICI off 2.7 per cent.
Bayer shed 2.5 per cent, further compounded by uncertainties over the Lanxess unit the German group is to list at the end of this month.
Next, the first big UK clothing retailer to issue a business update this year, fell 3.2 per cent after saying stock clearance after the crucial Christmas trading period had been slower than expected.