Europe's blue chips fell closer to five-and-a-half-year lows in late trade yesterday, as investors braced for more US war talk and as fears swirled about possible shock losses at Germany's Commerzbank.
Volatility gauges hit all-time highs and shares staged a broad-based retreat amid persistent fears over the outlook for economic growth and corporate profits, with declining stocks outnumbering risers by about three-to-one in average volume.
It wasn't all doom and gloom though as insurers staged a lonely recovery after Axa and Allianz again said they had no fund raising plans.
Some strategists even said there was scope for a significant rebound.
"Markets will remain volatile but we feel the lows will come this month as there's a lot of bad news priced in, and by the end of the year we could be 10-15 per cent up from current levels," said quantitative strategist Richard Batty at HSBC Securities.
The catch, though, was that any rebound would be short-lived, Batty said.
"Next year could be a different story as earnings expectations are too high," he said.
By 1548 GMT, with only Frankfurt officially trading, the FTSE Eurotop 300 index was off 1.42 per cent at 815 points, while the narrower DJ Euro Stoxx 50 index shed 0.86 per cent.
The Eurotop 300 is barely above its worst close since April 1997 - at 808.62 points - which it posted in late September.
The Dow Jones industrial average rose 0.4 per cent while the tech-heavy Nasdaq Composite eased 0.5 per cent. With Congress poised to authorise a potential war against Iraq, US President George W. Bush is due to make a speech after the US close outlining his case against Iraqi President Saddam Hussein.
Shares in Germany's third-largest listed bank Commerzbank slumped by 10 per cent as fears of surprise losses put investors, already nervous about the bank's weak capital base, on edge.
Shares in Commerzbank fell to their lowest level in two decades as concerns about its liquidity persisted, despite comments by board member Mehmet Dalman that the bank did not plan a rights issue to boost its capital ratio and a denial that it had suffered serious trading losses.
Techs fell sharply, led by beleaguered Dutch chip gear maker ASML, which fell 14.1 per cent after investment bank UBS Warburg cut its rating on the stock to "sell" from "hold".
Insurers firmed after France's Axa reiterated it had no plans for a capital increase and after the head of life insurance at Germany's Allianz reportedly said it had no plans to sell shareholdings.
UK titans Aviva and Prudential fared best of all, adding 4.7 per cent and 5.1 per cent respectively.
Dutch firm Buhrmann, the world's biggest business supplies company, sank 43 per cent after issuing its third profit warning this year, forecasting third-quarter core earnings would fall 19 per cent from a year ago.
British outsourcing firm Capita Group was among Europe's biggest gainers, rising 9.3 per cent after it said it would seek shareholder approval to buy back 10 per cent of its stock and gave an upbeat trading statement.
Shares in Abbey National also rallied after Bank of Ireland said on Sunday it had made a preliminary approach to the British mortgage bank about a possible merger, but sources close to the situation said Abbey was likely to reject the proposal.
Shares in Abbey National rose 5.9 per cent, while Bank of Ireland fell 7.6 per cent.
Swedish mutual funds group Skandia tumbled 10.1 per cent amid perceptions that the market for its equity-linked products is unlikely to recover soon and may force it to raise capital.
On a day bereft of any key US economic data, Federal Reserve Chairman Alan Greenspan could offer some clues on the state of the US economy in a speech he will deliver to the American Bankers Association at 1645 GMT.