European shares sank for the third straight day yesterday to within sight of nine-month lows as US shares extended losses and as an index rejig hit Royal Dutch and Unilever.
"The markets are looking pretty sorry for themselves at the moment," said one strategist at an asset management firm in Edinburgh.
"Equities look cheap when based against traditional measures like bond yields but people are still worried about the EBIT (operating profit) outlook and the markets have been hit by a wedge of bad stories."
By 1620 GMT, with only Germany still officially trading, the FTSE Eurotop 300 index of pan-European blue chips was down three per cent, at its session lows. The narrower DJ Euro Stoxx 50 index was off four per cent.
Europe's benchmark indices have now given back all the gains made in last Friday's startling one-day rally and are only three per cent above the lows they plumbed on September 21, in the wake of the attacks on New York and Washington.
They are nearly 20 per cent below their year highs reached on March 19.
New York markets were hampered by mixed earnings reports. The Dow Jones industrial average, the broader Standard & Poor's 500 Index, and the tech-laden Nasdaq Composite were down between 0.9 and 1.7 per cent.
Strategists said this week's sell-off was starting to make shares look cheap again.
"Generally we're buyers at the moment," said Teun Draaisma, European strategist at Morgan Stanley. "Valuations look supportive, the recovery in economic growth cannot be ignored for ever and we think the upcoming earnings season could be a big trigger.
"This is a very risky environment and a lot of people are focusing on the negatives, but I think those negatives are now largely in the price," he added.
Royal Dutch was the session's biggest blue-chip loser after Standard & Poor's kicked it, and consumer goods giant Unilever, off its S&P 500 index in a technical move designed to make the benchmark more US-focused.
Some European fund managers were angered by the surprise announcement and the speed with which the change will come about. Others said it smacked of protectionism.
Royal Dutch, the 12th biggest stock of the 500 on the index, dropped 8.4 per cent while Unilever lost 6.4 per cent.
Stricken media giant Vivendi Universal took another pummelling on the market, shedding 7.5 per cent after French regulators launched a probe into its financial disclosure by raiding its Paris headquarters late on Tuesday.
The investigation stole the spotlight from confirmation that Vivendi had signed a one billion euro loan to keep the group going for the next few weeks, as it hammers out a long-term rescue package.
Elsewhere, insurers were down on fears that German reinsurer Munich Re's move to hike its provisions for losses related to September 11 could be copied across the sector.
Insurers were also hit by concerns over their exposure to slumping equity markets. Zurich Financial was the worst hit, tumbling 7.5 per cent.
German drugmaker Schering was down 5.8 per cent after a study showing a hormone replacement drug from US rival Wyeth increased heart disease and cancer risks.
This raised fears that Schering could face similar problems with its hormone drug. Anglo-Swedish drugs group AstraZeneca was knocked 6.8 per cent lower.
Yesterday's sell-off was broad-based. Only 17 stocks in the FTSE Eurotop 300 and three in the Euro Stoxx 50 ended the session in positive territory.
US media and internet giant Yahoo! was due to report after the market closed in New York and is likely to set the tone for technology and media stocks in Europe today.