Insurers and technology firms kept European stocks under pressure yesterday afternoon amid worries about rising US interest rates and despite a higher open on Wall Street.
"Equity markets don't like interest rates going up," said Matthew Wickens, strategist at ABN Amro.
"But the US has decided today that the cost of capital is still low, companies are keeping costs under control and economic and earnings growth still look good."
By 1500 GMT, the FTSE Eurotop 300 index of pan-European shares was down 0.69 per cent to 989.06 points. The narrower DJ Euro Stoxx 50 index shed 0.97 per cent to 2,868.74 points.
Axa slid 3.5 per cent and Allianz fell 2.3 per cent on fears the insurers may have to pay several hundred million dollars to replace a Deutsche Bank building damaged in the World Trade Centre attack.
In the technology sector, Europe's biggest chip maker STMicroelectronics fell 4.2 per cent after it posted a lower quarterly profit despite higher sales. The company blamed the strong euro, pricing pressures and low-margin products.
The news worried investors who sold off chip-related shares. Dutch chip equipment maker ASML was down 2.1 per cent, designer ARM Holdings fell 5.6 per cent and Germany's Infineon shed 1.3 per cent.
But Hennes and Mauritz, one of the world's top fashion retailers, jumped 6.5 per cent as investors focused on strong Christmas sales and shrugged off fourth-quarter results just below the consensus.
In New York, the blue-chip Dow Jones industrial average was up 0.18 per cent at 10,485.63 points, but the technology-laden Nasdaq Composite Index was down 0.34 per cent at 2,070.35.
US equities tumbled on Wednesday after the US Federal Reserve kept the funds rate at 1.0 per cent, but dropped a five-month pledge to keep rates low for a "considerable period" and said instead that it "can be patient".
Yesterday the focus returned to stronger economic and earnings growth as US jobless claims edged lower last week and investors looked ahead to fourth-quarter US gross domestic product growth data due today.
Bernard Walschots at Rabobank said the GDP report, January US non-farm payrolls next week and US Fed chairman Alan Greenspan's Humphrey-Hawkins testimony "constitute the main risks to bond and stock markets in the next two weeks".
Across Europe Britain's FTSE was down 1.16 per cent at 4,416.1 points, Germany's DAX shed 1.09 per cent to 4,105.01, France's CAC lost 1.10 per cent to 3,666.26 and the Swiss SMI slid 0.43 per cent to 5,778.4.
Telecoms, one of the best-performing sectors this year, fuelled the slide as Britain's Cable & Wireless shed 2.7 per cent after posting a five-per cent drop in third quarter revenue.
Vodafone followed with a loss of 2.1 per cent and France Telecom gave up 2.6 per cent on market talk that it would launch a buyout of minority shareholders of Internet service provider Wanadoo.
France Telekom denied the rumour, but Wanadoo jumped 4.1 per cent.