Europe's leading shares hurtled towards two-month closing lows in late trade yesterday, as the drums of war picked up a beat and as poor earnings from US group Micron slammed into technology stocks.
German chip producer Infineon and Dutch chip gear maker ASML led the tech-led slump as investors reacted to heavy falls in the Nasdaq and to negative broker comment, with global handset leader Nokia also down sharply.
But losses were broad-based. Falling stocks outpaced risers by almost four to one, as investors braced for an expected US declaration that Iraq was in breach of a UN disarmament order, bringing the threat of war a step nearer and potentially rattling the brittle global economic recovery.
"We still see a slight 'buy' valuation signal, but it's not as strong as it used to be and is put into perspective by ongoing economic and geopolitical uncertainties," said Alan Zlater, pan-European fund manager at Credit Suisse Asset Management in Zurich.
By 1636 GMT, with only Frankfurt still trading officially, the FTSE Eurotop 300 index of pan-European blue chips was down 1.9 per cent at 863 points while the narrower DJ Euro Stoxx 50 index fell 2.4 per cent to 2,431.
The benchmark Eurotop 300 index has retraced about half of the 20 per cent bounce that it achieved after slumping to five-and-a-half year lows in October.
On Wall Street, the Dow Jones industrial average fell 1.5 per cent and the tech-laden Nasdaq Composite sank by more than three percent.
US President George W. Bush met top aides to discuss his likely announcement declaring Iraq in violation of a UN disarmament resolution.
Any declaration would not be an immediate trigger for war, US officials said. But that failed to stop crude oil prices from surging to 11-week highs as fears mounted of a potential disruption to key Middle Eastern supplies in the new year.
Tuesday's news that loan group Conseco had filed the third-largest US bankruptcy, together with the threat of war, showed that demons which have haunted financial markets in 2002 had not gone away, according to some market watchers.
"With these demons in the background stocks are going to struggle to end the year on a high note," strategists at Bear Stearns said in a daily note.
The approach of tomorrow's glut of equity-related futures and options expiries across Europe added to investor jitters, dealers said.