European shares ended lower on renewed worries over the outlook for the US economy, but a late recovery in recently hammered banking shares helped the market close off the session's lows.
It was the market's fourth retreat in five sessions as weak consumer confidence data and a profit warning by US package delivery company United Parcel Service added to the gloom. The FTSEurofirst 300 index of top European shares ended 0.7 per cent lower at 1,214.25 points, its lowest close since mid-March. The index has lost around nine per cent so far this month.
The Conference Board said its overall monthly measure of consumers' mood declined to 50.4 this month - the lowest since 47.3 in February 1992 - from a revised 58.1 in May. Economists on Wall Street had been expecting a reading of 56.4, according to a Reuters poll.
"Worries over a slowdown have spread from financial market professionals to people in the real economy, and it confirms what the market has been fearing for a while," said Jean-Claude Petit, head of equities at Barclays Wealth Managers France.
"The real danger is to face a clear economic downturn and earnings erosion, without having room for interest rate cuts because of high inflation," he said.
An interest rate decision by the US Federal Reserve is expected on today.
The Fed, which has slashed interest rates by 2.25 percentage points so far this year, is expected to keep rates steady at two per cent. But the focus will be on the Fed's statement, as investors look for insight on the outlook for rates.
Earlier this month, the European Central Bank took the markets by surprise by leaving the door open to a rate hike in July to keep inflation at bay.
Banking stocks staged a late recovery yesterday, tracking gains by their US peers on Wall Street. Royal Bank of Scotland gained 2.2 per cent, Barclays rose 3.7 per cent and BNP Paribas added two per cent.
The DJ Stoxx European banking index is down about 31 per cent in the year-to-date on investor concerns over the impact of a credit crisis on the banks' balance sheets.