European blue chips slumped closer to one-month lows yesterday afternoon as keenly awaited data suggested the US recovery is grinding to a halt and may not be strong enough to boost corporate profits.
Sectors sensitive to the economic recovery such as basic resources, autos and consumer cyclicals fell furthest, although economists refused to throw in the towel.
"We still don't know whether this is reflecting a change in sentiment or whether there is real slowdown in the US economy, so the burden of proof is shifted onto other data due later this week, not least the non-farm payrolls report on Friday," said Jim Glassman, senior US economist at JP Morgan, New York.
But taken together with better recent US regional business sentiment data, and a bounce in durable goods orders and housing market activity, Glassman said the report still did not justify double-dip fears.
By 1418 GMT, the FTSE Eurotop 300 index was 3.76 per cent weaker at 902 points, its lowest level in nearly a month. The narrower DJ Euro Stoxx 50 index fell four per cent to 2,532 points.
On Wall Street, the Dow Jones Industrial Average index was 2.9 per cent lower while the tech-heavy Nasdaq Composite was 2.9 per cent weaker.
The sell-off in the FTSE Eurotop was broad-based with fallers outnumbering risers in a ratio of ten-to-one.
Investors fear the markets' rally from five-year lows at the end of July is gradually petering out as profits fail to live up to expectations and the market frets about security-related issues in the run-up to September 11.
"There seems to be a rekindling of worries about the global economic upturn," said David Thwaites, a European strategist at BNP Paribas.
"July 24 was a bottom in the market I'm not sure it was the bottom," said Thwaites.
The general malaise was peppered with some stock specific news such as the rejig of Stoxx indices Monday evening.
Swedish telecom equipment maker Ericsson was down 6.7 per cent, French rival Alcatel shed 10.8 per cent and Vivendi Universal lost 5.9 per cent. All three companies were thrown out of the Stoxx 50 index.
The US Institute of Supply Management's August index of activity produced a reading of 50.5, shy of analysts' forecasts at 51.6.