European blue chips flirted with six-week closing lows late yesterday after Alcatel warned of weakening market prospects and as cyclical stocks slumped on lingering worries over the brittle global economy.
Better than expected US retail sales data helped stem the losses for a time, but auto makers like DaimlerChrysler topped the blue-chip loserboard after poor European auto sales data.
By 1703 GMT, with only Frankfurt officially trading, the FTSE Eurotop 300 was down 1.63 per cent at 878.94 points, while the narrower DJ Euro Stoxx 50 index was down 1.73 per cent at 2,4871 points.
Trading volumes were solid, as falling stocks outpaced risers by more than three-to-one.
The benchmark Eurotop had recovered by up to 20 per cent after plumbing five-and-a-half-year lows in early October, but it has since slipped back by around 8 per cent as economic doubts have resurfaced.
Shares in Alcatel slumped by almost 16 per cent after the French telecoms equipment maker confirmed a rumour that had swirled through the afternoon, announcing plans to launch a convertible bond of up to 820 million euros.
Some analysts said they were "confused" by the move, citing repeated previous assertions from the firm that such capital raising activities would not be good for shareholder value.
But in accompanying trading update, the company also said it saw further deterioration in its markets in 2003.
Traders said the telecoms equipment sector generally was also suffering from an extended hangover after handset leader Nokia issued its sixth sales warning of the year on Tuesday, as a hoped-for holiday-buying boost from new colour-screen phones fizzled out.
Italy's embattled Fiat and Germany's BMW dropped 4.9 per cent and 4.7 per cent respectively, ensuring the DJ Stoxx auto index posted the day's worst sectoral performance, after European carmakers association ACEA said they were the hardest hit in a month of poor sales across the sector in November.
DaimlerChrysler, heavily weighted on European indices, tumbled 4.3 per cent.
Banks like Britain's Lloyds TSB and Abbey National fell sharply as investors focused on the region's mounting bad debts after a recent slew of downbeat trading statements.
Meanwhile, a Reuters poll showed equity strategists expected healthier prospects for bank and insurance company profits to lead a European stock market recovery next year.
BAE Systems slumped by another 20 per cent, having shed a fifth of its market value on Wednesday, after Europe's biggest defence firm warned of cost overruns and delays to two multi-billion-pound UK defence contracts, sending investors into a tizzy over the likely knock-on effects on profits.
BAE's plunge spilled over and depressed other engineering companies, and Invensys was down six per cent.
Elsewhere, Swedish financial and equity savings-products group Skandia fell 6.3 per cent after it reported that November sales came in at a less-than-expected 8.9 billion Swedish crowns, a decrease of five per cent from November 2001.
Spain's leading power utility Endesa sank 6.1 per cent on concerns its Latin American units may have to prepay $2.4 billion in unsecured bank loans due to a credit downgrade, after Standard & Poor's slashed its credit rating late on Wednesday.
In New York the Dow Jones industrial average dipped 0.66 per cent and the tech-laden Nasdaq Composite was flat.
The US Commerce Department said November sales rose 0.4 per cent and stripping out autos sales were up 0.5 per cent, bigger-than-expected gains that were offset however by a surge in weekly jobless claims to 441,000.
"Reports of the death of the US consumer have been greatly exaggerated, but the rise in jobless claims back above 400,000 will keep people concerned about the state of the labour market," said Matthew Wickens, global economist at ING.