European stocks ended sharply lower yesterday, softened up by mixed company earnings in the morning and then floored by worrying US data in the afternoon.
Royal Dutch/Shell and Barclays were the biggest culprits on the corporate side, disappointing the market with big falls in first-half profits.
Banks bore the brunt of losses but oil majors, basic resources stocks, financials and insurers were also hit hard.
The sell-off accelerated in the last 90 minutes of trade after the US Institute for Supply Management unveiled shockingly bad manufacturing numbers.
The institute's index for July fell to its lowest level since January, down to 50.5 from 56.2 in June. A reading below 50 suggests economic contraction.
The figure made a mockery of forecasts for a modest fall to 55.1 and, coming hot of the heels of weak US GDP numbers and consumer confidence data this week, cast further doubt on the prospects for the world's biggest economy.
"It's clearly not good," said Jane Edwards, senior international economist at Lehman Brothers. "It's telling you manufacturing output has returned to something close to stagnation."
Europe's benchmark stock indices extended their losses after the data's release and ended close to session lows.
By 1532 GMT, with only Frankfurt still officially trading, the FTSE Eurotop 300 index of pan-European blue chips was down 4.48 per cent.
It is still 6.5 per cent higher than it was last Wednesday, when it plumbed lows not seen since 1997, but is 27.5 per cent lower for the year to date.
The narrower DJ Euro Stoxx 50 index, on which Royal Dutch/Shell and Barclays both feature, lost 5.11 per cent.
Barclays ended the day among the the biggest blue-chip losers in Europe, down 9.2 per cent after it reported a six per cent fall in first-half profits as Argentina's economic crisis pushed its bad debts sharply higher.
"Our performance in the first half of 2002 has not met our own high standards," the bank conceded.
The news knocked the share prices of other UK banks, many of which have still to report.
Royal Bank of Scotland and Lloyds lost over seven percent each and the DJ Stoxx banking index shed 5.21 per cent.
Insurers and financials were thumped by a profit warning from German insurer Allianz late on Wednesday, which came after months of turmoil in the sector.
Dutch pairing ING and Aegon lost around 10 per cent each while France's Axa was down 9.4 per cent.
On the upside, however, British insurer Aviva soared 10.6 per cent after putting paid to concerns over its financial strength with solid first-half results, and Deutsche Bank shares were stable on the back of better-than-expected second quarter profits.
"On the one hand, you've got Deutsche providing reassurance from Germany and on the other you've got Barclays unsettling people with its provisions for Argentina," said David Thwaites, European strategist at BNP Paribas in London.
"Among the insurers you have Allianz doing one thing and Aviva doing another with decent numbers. It shows it's all about individual stocks. If you take a general view on these sectors, you're going to get burned."
Switzerland, where markets remained open despite a public holiday, was a case in point.
Reinsurer Swiss Re bucked the market trend by gaining a little ground while the ever-volatile Zurich Financial slithered over nine percent.
The country's classic defensive plays - Roche, Novartis and Nestle - found favour, helping the Swiss Market Index limit is falls to 1.94 per cent.
Among Europe's smaller standouts, shares in German financial services firm MLP, which has been battling for months to restore investor faith in its accounting, tumbled 16 per cent on a new report that it artificially inflated its earnings.
As most of Europe's bourses closed, Wall Street was pinned back in the red.
The Dow Jones industrial average was 2.3 per cent lower while the Standard & Poor's 500 Index and the tech-studded Nasdaq Composite were 2.8 per cent lower.