European stocks plunged yesterday as the weak dollar pummelled exporters like auto makers DaimlerChrysler and Volkswagen amid rekindled worries about the global economic recovery.
Investors, fearing companies may struggle to meet expectations in the upcoming corporate reporting season, stepped up selling after weak US consumer confidence data raised more questions about the health of the economy.
Yesterday's decline was led by currency-sensitive export stocks like autos and chemical groups as the dollar hovered around three-month-lows against the euro.
"The currency is a big trigger here. I am afraid we are going back in this downward spiral where bad news triggers lower earnings," said Ulf Moritzen, fund manager at Nordinvest in Hamburg.
By 1602 GMT, with only Frankfurt's DAX still officially trading, the FTSE Eurotop 300 was 1.7 per cent lower at 861 points, racking up its eighth straight session of declines. The index of Europe's top 300 blue chip stocks earlier fell as much as 2.3 per cent to its lowest level since early August.
The narrower DJ Euro Stoxx 50 index was down 1.9 per cent at 2,394 - only eight points above its 2002 close.
Data showed US consumer confidence unexpectedly fell in September while the pace of business expansion in the MidWest slowed. The news whacked US shares and sent yields on US Treasuries sharply lower.
"The key is the bond market: we're seeing a serious test of the lower end of the range for 10-year US Treasury yields. A sustained close below four per cent would mean that bond investors were telling us not to bet on recovery, which would be bad for stocks and bad for the dollar," says Gerry Celaya, a director at technical analysts Redtower Research.
In Europe, an earlier raft of data pointed to improving sentiment but little sign of concrete improvement with weak sales, poor job conditions and sliding industrial orders.
The Dow Jones industrial average was 1.1 per cent weaker while the Nasdaq Composite Index was down 1.5 per cent.
Around Europe, the DAX was 2.4 per cent down after earlier falling as much as 3.6 per cent - its biggest one-day drop since mid-May. London's FTSE 100 was 1.24 per cent down. Paris lost 1.68 per cent and Zurich shed 1.15 per cent.
Market volatility as measured by Germany's so-called "fear barometer", the Volatility DAX, surged six per cent yesterday. The VDAX has gained 34 per cent this month - the biggest monthly increase since the end of last year.
The DJ European auto sector hit a two-month low, led by a 4.7 per cent fall from Porsche, DaimlerChrysler's three per cent fall and a 3.7 per cent weaker BMW as the dollar hit a three-month low against the euro.