European shares tumbled to a five-week low yesterday after deadly blasts in Madrid prompted investors to take more cash off the table, marking the eve of the bull market's first anniversary with a sombre note.
Ten simultaneous explosions killed almost 200 people in the Spanish capital three days before a national election, with Spain blaming the Basque separatist group ETA.
The market suffered its worst one-day fall since May last year as travel stocks skidded on concerns the bombs may cause travellers throughout the continent to cancel trips.
The broad-based slide marked a third day of a retreat for the market after its largely uninterrupted upturn from six-year lows on March 12, 2003.
The breakdown in key US indexes will also spur more selling as investors see little fresh news until a new reporting season begins in late April, and are niggled by doubts over the sustainability of economic recovery, fund managers said.
"Without Madrid, the market would have been down a lot as it's led by the US situation," said Kevin Lilley, a European fund manager at Royal London Asset Management.
"We are going into a period now where we virtually have no news flow from companies, and economic data has been relatively weak recently," Mr Lilley said.
"We had this period when the market has been rising for such a long time with no proper correction since September last year. There is more to go but not much, maybe another two or three per cent and then people will reassess. It's a correction in an overall uptrend," he added.
The FTSE Eurotop 300 index closed down 2.6 per cent at 986.46 points, its biggest one-day percentage fall since May last year. It was the weakest close since February 6, with volume more than twice the average.
The DJ Euro Stoxx 50 index closed off three per cent at 2,834.02 points.
German travel giant TUI was among the worst performers in its pan-European sector, trading 7.2 per cent lower. Spain is TUI's biggest holiday destination.
German airline Lufthansa and retailer KarstadtQuelle, which jointly own Europe's second-largest travel firm Thomas Cook AG, were down 4.7 per cent and 4.6 per cent, respectively.
British Airways dropped eight per cent, also hit by news that costs could rise by between 300 million and 400 million pounds in the year to end-March 2005, thought to be due to higher pay, pensions and fuel.
Technology, the year's high-flyer, was hardest hit as telecom equipment maker Ericsson shed six per cent, handset giant Nokia dipped three per cent, and Philips Electronics was off 4.8 per cent.
The sector was last year's best performer, up 34 per cent, and is still 17 per cent ahead this year, outpacing the broader market's 3.6 per cent advance.
Analysts said tech stocks remained ripe for profit-taking due to lofty prices, while other groups were also vulnerable.
"We think tech is especially risky because of valuations, and, increasingly, we fear that metals and mining - or any other sector with a significant China premium - could come crashing down in the event of any bad news from China," Morgan Stanley strategists Teun Draaisma and Ben Funnell said.
Among the standouts, UK general insurer Royal & Sun Alliance fell 15.4 per cent after it revealed 2003 profits slid 38 per cent and it set aside more money to pay out claims.
German drug and chemical group Bayer sank six per cent, saying it would cut its 2003 dividend by nearly half.
French engineer Alstom fell 14 per cent as investors digested reports that France may ask state-controlled nuclear energy services firm Areva to rescue Alstom.
On the US data front, retail sales rose in February, but the gains were mostly confined to autos and department stores, but the lines for first-time jobless benefits were at their shortest in two and a half years.