Weak chemicals stocks pushed European share indexes to their lowest close of the year yesterday as oil prices continued to rise and patchy US data fuelled concerns about the economic recovery.
Swedish savings products group Skandia was among the worst performers, shedding 8.5 per cent after saying it would not use its cash to pay shareholders, while watchmaker Swatch tumbled after saying it had launched an internal investigation following allegations of tax evasion.
The FTSE Eurotop 300 index of pan-European blue chips closed 0.4 per cent lower at 940.9 points, its lowest closing level since December 17, 2003.
Nearly two stocks fell for every one that rose and turnover was a paltry €2.1 billion as trading floors emptied for summer vacations.
The Eurotop 300 has fallen about 1.3 per cent this week, following a 2.7 per cent decline last week.
The narrower DJ Euro Stoxx 50 index fell 0.3 per cent to 2,580 points and has now clocked up a decline of almost 6.5 per cent this year.
"In the long run, we expect the recovery pendulum to continue swinging back in favour of stronger stocks and weaker bonds, but there is no real sense about how the current stock market gloom is going to be lifted," Bear Stearns said in a note.
"It is quite clear from investor surveys there is a very definite change in the tide as far as short-term stock market sentiment giving way to safe haven and flight-to-quality trades back into government debt."
The University of Michigan's consumer sentiment index unexpectedly fell to 94 from 96.7 last month. Economists had expected a rise in confidence.
US producer prices rose 0.1 per cent last month, less than expected, but the US trade deficit widened to a record $55.8 billion in June, much more than forecast.
Bonds firmed and the dollar suffered a broad-based fall after the data.
"With weaker data coming out of the States, people have become a bit wary, not just about the US, but what it means for global GDP," said Mike Turner, head of global strategy at Aberdeen Asset Management.
While Europe's economy had improved over the past year or so, much of the gains were concentrated in export-oriented sectors that now appeared more vulnerable, he said. Record-high oil prices also posed a threat to global growth and earnings, although speculative activity appeared to be dominating oil price moves at present, Mr Turner said.
"Hedge funds have been struggling to make money this year, and oil is the only game in town."
US crude prices hit a new high of $45.99 a barrel yesterday after news of an explosion in a US refinery compounded supplies concerns.
Big oil users like chemicals firms Bayer and BASF softened as investors worried about higher input costs, with Bayer down 2.5 per cent and BASF 1.5 per cent lower.
Wall Street edged up after stocks there sank to new lows on Thursday, helped by an upbeat outlooks from personal computer maker Dell Inc.
The blue-chip Dow Jones industrial average was flat at 9,813 points, while the Nasdaq Composite Index rose 0.3 per cent to 1,758 points by 6.19 p.m.
Beaten-down European tech stocks benefited from Dell's more positive outlook, with the sector rising 1.3 per cent.
However shares in the world's biggest watch maker, Swatch Group, fell 3.6 per cent following media reports that it faced allegations of tax evasion.
Swatch said initial results of an internal investigation into the complaints brought by former employees showed it did not violate any laws.
On the positive side, German tourism firm TUI, rose 7.2 per cent to €15.11 after a source said US private equity firms were interested in buying WestLB's 31 per cent stake TUI.
Around Europe, London's FTSE 100 closed 0.6 per cent weaker, while Paris's CAC-40 ended down 0.3 per cent. In Zurich, the SMI fell 0.9 per cent and Frankfurt's DAX closed 0.3 per cent softer.