European blue chips tumbled yesterday afternoon, led down by Credit Suisse on concern over its exposure to troubled engineer ABB and Munich Re after a ratings downgrade.
The mood was also soured by a weaker open on Wall Street. By 1331 GMT, the Eurotop 300 index was down 2.07 per cent at 882 points, while the narrower DJ Euro Stoxx 50 index shed three per cent to 2,432 points.
On Wall Street, the Dow Jones industrial average was 0.54 per cent weaker while the tech-heavy Nasdaq Composite was 0.5 per cent lower.
The FTSE Eurotop 300 benchmark has rallied about 13 per cent since hitting five-and-a-half year lows on October 10. Investors said markets paused for breath yesterday after such a hard and fast climb but they believe the foundations are in place to push higher in the medium term.
"Prices have rallied too fast in a short space of time so it is healthy to see some consolidation," said Roger Hornett, chief executive and global strategist at Gilissen Securities in London.
"However valuations look reasonable and US corporates have mostly surprised on the upside. We have scribed the bottom of the market," said Hornett, whose group runs a total of seven billion euros globally.
Credit Suisse fell sharply amid mounting fears that Switzerland's second-largest bank could be hurt by the continued financial troubles at engineering group ABB. Credit Suisse's exposure to ABB amounted to $260 million, according to sources.
ABB's stock hit historic lows and its bonds traded near junk levels after an earnings warning and as the group scrambled to quell market fears of a grave new financing crisis.
Insurers were also weak after Deutsche Bank downgraded German insurer Munich Re, while energy stocks were subdued by soft oil prices.
Disappointing results from Europe's biggest drugmaker GlaxoSmithKline around midday knocked European markets even lower, even though it tried to win over investors by extending its programme to buy back shares.
GlaxoSmithKline said earnings per share rose six per cent to 16.7 pence in the three months to September 30. Analysts had forecast earnings of 16.5 to 18.7 pence.
Weak results from Germany's second biggest bank HVB further undermined sentiment and the market shrugged off better-than-expected results from DaimlerChrysler.
The world's fifth-biggest carmaker DaimlerChrysler gave up initial gains after posting strong third-quarter earnings. Dealers said the positive earnings news had already been written into the price.