European stocks suffered their biggest one-day fall in nearly a month yesterday when technology leaders like Alcatel slumped on bleak outlooks from US peers, while weak German data dented hope for a timely economic recovery to revive profits.
Insurers were hit as the retreat in stocks trims the value of their equity investments, and the sector now looks to today's earnings reports from two of its leaders, Munich Re and Swiss Re for some cheer.
Oils fell as crude oil cut its recent hefty gains on talk of output hikes by the OPEC producer cartel next month to help counter the impact on prices of a possible US war on Iraq.
The stock market's 20 per cent advance from its five-year low of late July has ground to a halt and big hurdles loom.
"I think we are stuck in a trading range," said Robert Sellar, a fund manager at Aberdeen Asset Management.
"We have the September 11 anniversary not far off and consequently the market will get jittery, with oil prices telling you that. Then we have got the third quarter earnings pre-releases in the middle of September."
Worry that more earnings warnings lay ahead were stoked by Canadian telecom equipment maker Nortel Networks which cut its third-quarter revenue target and slashed jobs, sending shares of French rival Alcatel down 8.8 per cent.
Techs were also hit by news from top US personal computer and printer maker Hewlett-Packard which cut its guidance for the current quarter.
By 1532 GMT, with only Frankfurt officially trading, the FTSE Eurotop 300 index was off 3.6 per cent at 964.15 points. It was the benchmark's biggest one-day fall since August 1, and the index has struggled to stay above the 1,000 point mark.
The narrower Euro Stoxx 50 index sank 4.5 per cent to 2,735 points, also its biggest one-day fall since August 1, with all 50 shares in the index falling.
A drop in the influential Ifo German business sentiment index in August for the third month added to the market's gloom, signalling that recovery in Europe's biggest economy is unlikely to gain momentum anytime soon.
This, coupled with Tuesday's conflicting US economic numbers robbed the stocks advance of a momentum that is unlikely to return soon as the environment stays friendlier to bonds than stocks, economists said.
"The Ifo survey was down more than consensus, but not as bad as some had feared, including myself," said Ken Wattret, chief Euroland economist at BNP Paribas bank.
"Our general belief is that there is recovery on the way, but it will be long time before we see its full effect, so it's a positive environment for bonds in the short term as the economic data coming through are likely to be quite choppy." On Wall Street, the Dow Jones industrial average was off 1.3 per cent at 8,706 points, while the tech studded Nasdaq Composite shed 1.5 per cent to 1,327 points.
Investors drove Anglo-Australian industrial services group Brambles down 15.2 per cent on fears profit margins at its world-leading pallet leasing
Europe's insurers also took a tumble as investors again fretted about the impact of the bear market on their equity holdings and solvency ratios.
Swiss insurer Zurich Financial shed 10.9 per cent, while Dutch Aegon fell 6.9 per cent. German duo Allianz and Munich Re were down nearly seven percent apiece.
But it was full-steam ahead for Danish oil and shipping group A.P. Moeller, up nearly 18 per cent, after posting a 22 per cent rise in first-half earnings and raising 2002 profit forecasts due to improved oil earnings and better expectations for its associated and other companies.
Meanwhile Danish transport and logistic company DSV sank 11.3 per cent after first-half operating profit came in below expectations.
Shares in Fortis eased six percent in Amsterdam after the Benelux bancassurer kept investors guessing about prospects for the rest of the year, saying it couldn't offer guidance until the size of losses from stock market investments were known.
Despite yesterday's pullback, the vast majority of European fund managers expect stocks to be the best performing asset class over the next 12 months.
An August survey of 49 fund management groups by tracking firm Morningstar found that 90 per cent of managers expect equities would be the best performing asset, unchanged from July, while only four percent thought bonds would be the strongest performer.
"Investors might miss out if the fund management groups are right as 48 per cent of managers say most inflows (from clients) will go into bond funds over the coming year," said Morningstar's report.
European investors face a late earnings season flurry of reports on Thursday that includes two major Internet players, Tiscali and T-Online, supermarket giant Ahold, Europe's biggest travel company TUI, and Reckitt Benckiser, the world's biggest marker of household cleaning goods.