European blue chips neared session lows yesterday afternoon, weighed down by banks on fears interest rates are set to rise and by losses on Wall Street.
The Bank of England revealed it came within a single vote earlier this month of an interest rate rise, shocking investors with a sign that the interest rate cycle may start to turn.
"The Bank of England has dropped a bombshell on global markets with very strong hints that they are on the brink of a rate rise soon. This is not just bad news for UK interest rate expectations but sends shock waves through other interest rate futures strips," said David Brown, chief European economist at Bear Stearns.
British mortgage banks reacted badly to the threat of a lending slowdown, and Northern Rock, HBOS and Abbey National were all down over three per cent.
By 1334 GMT the FTSE Eurotop 300 index of pan-European blue chips was down 1.5 per cent at 904 points - but still within reach of its highs for the year - while the narrower DJ Euro Stoxx 50 index was down 1.5 per cent at 2,522 points.
A cautious outlook from staffing agency Adecco and some disappointment that drugs group GlaxoSmithKline left its guidance unchanged also dampened market sentiment.
French drugmaker Sanofi-Synthelabo was another black spot. The shares shed nearly two per cent as disappointing revenues from the company's sleeping pill Ambien took the shine off a nine-per cent rise in third-quarter sales.
But there was good news courtesy of Renault, Europe's fourth-biggest carmaker, which posted a much better than expected rise in quarterly turnover and said its market share in western Europe would be "as close as possible" to last year's. It shares moved up 1.2 per cent.
Electrolux fell 2.4 per cent after home appliance peer, Whirlpool Corp., said third-quarter profit rose 4 per cent, but fell short of analysts' estimates, as higher costs offset increased sales of higher-priced products.
Quarterly earnings have so far met or slightly exceeded market expectations, but strategists said most of the good news was already priced into shares after a six-month rally hoisted the benchmark Eurotop 300 index more than 35 per cent higher.
Only stupendous numbers or much more bullish outlooks than those so far given by companies could spark a new market rally, they said.