Some 170 billion euros was wiped off the value of Europe's leading firms yesterday, as investors geared up for the second quarter reporting season in a pessimistic frame of mind and shares headed for a four-year closing low.
Switzerland's Zurich Financial led the decliners as fears over their exposure to falling equities weighed on insurers, but retailers also struggled after weak sales data from France's Carrefour and Germany's KarstadtQuelle.
But all sectors fell, underscoring the crisis of confidence that has gripped markets amid a succession of accounting scandals and lingering concerns over the outlook for company profits, even though shares are now fundamentally cheap.
"Trying to call a bottom when markets are tumbling has often been described as trying to catch a falling knife, but this is more like trying to catch a falling piano," said Michael O'Sullivan, pan-European equities strategist for Commerzbank.
He nonetheless added that "stock markets were very, very cheap compared to bonds, probably the cheapest they've been in 17 years."
By 1350 GMT, the FTSE Eurotop 300 index of pan-European blue chips was off 3.8 per cent at 987 points, its lowest intraday level since September, in the wake of the attacks on the United States.
If the index closes around these levels once late-trading in Frankfurt wraps up for the day, it will mark the benchmark's lowest close since October 1998.
The DJ Stoxx insurance and retail indices topped the sectoral loser board with losses of 6.5 per cent and 4.7 per cent respectively, but all sectors were down, making life difficult for fund managers.
"This kind of market is particularly difficult for active fund managers like us, because when things are going down in a broad fashion it's difficult to distinguish those stocks with merit from those without merit," James McMillan, European fund manager at Merrill Lynch Investment Managers.
Insurers were hit as the sector's exposure to weak equities added to fears about whether reinsurers will bolster reserves for US operations and for World Trade Centre liabilities.
Zurich Financial came off worst, slumping 19 per cent, as the company announced a hiring freeze and traders speculated over further possible job cuts to come as the company battles to restore profitability.
"Insurers have been battered recently compared to their US counterparts because they have a higher equity weighting in their portfolios, which makes them more highly geared to market weakness, and their lack of excess capital," said Mark Hargraves, a European fund manager at Framlington.
Merrill Lynch also downgraded its recommendations on the world's two largest reinsurers, Munich Re and Swiss Re.
Munich Re lost 5.4 per cent, while Swiss Re fell 7.3 per cent, ahead of a trading update the Swiss group is expected to deliver today as traders fretted over what it might contain.
Axa's shares hit a near five-year low at 15.02 euros, after Morgan Stanley downgraded the French insurer.
France's Carrefour, the world's second biggest supermarket group, led retailers lower with a nine per cent fall.
The company's shares had tumbled 6.4 per cent in the previous session after disappointing the market with a 1.5 per cent decline in first-half sales.
Europe's largest department store and mail order group KarstadtQuelle fell 6.9 per cent after Chief Executive Wolfgang Urban told the firm's annual meeting that the group would post a steeper loss in the first half than in the first quarter and made no 2002 forecast due to overall economic uncertainty.
"We weren't really expecting Karstadt to give any guidance but the stock's been hit by the generally cautious tone of the statement and the figures themselves," said Nick Bubb, retail analyst at Societe Generale in London.
In New York, the S&P 500 and tech-laden Nasdaq Composite indices fell between one per cent and 1.3 per cent, having plunged to five year lows on Wednesday.
Earlier, news US producer prices ticked up 0.1 per cent in June instead of coming in unchanged, as expected, had little discernable impact on interest rate futures and was countered by a rise in initial jobless claims to a six week-high, underscoring the still-weak state of the US labour market.
"I don't think people will alter their interest rate outlook on the back of these numbers," said Peter Ostler, head of research at futures broker GNI.
Many economists now do not expect US interest rates to rise until early next year, while recovery struggles to take hold, equity markets continue to tumble, and inflationary pressures remain inert.
Deutsche Telekom stood out among the few risers after Ron Sommer, its embattled Chief Executive, fuelled speculation he may be ready to go, clearing the way for a new head to restructure and cut the group's massive debt pile.
The telecom operator's stock was one per cent higher.