European blue chips sank towards six-year lows in heavy late trade yesterday, after poor US data and a shock UK rate cut cast fresh doubt over the outlook for company profits, as war fears bubbled in the background.
"All three factors gelled today and down we went," said David Thwaites, pan-European equities strategist at BNP Paribas.
Shell was among the biggest losers after a bumper 2002 profit failed to dispel concerns over the Anglo-Dutch oil group's future earnings.
Insurers such as Munich Re also fell sharply, as investors once again focused on the sector's chunky exposure to falling stock markets.
By 1800 GMT, with only Frankfurt still trading, the FTSE Eurotop 300 index was down 2.4 per cent at 781 points as decliners beat advancers by more than three to one, while the narrower DJ Euro Stoxx 50 index fell 2.6 per cent.
That left the FTSE Eurotop about four per cent off the six-year intraday low plumbed last week and just 10 points off the near six-year closing low also recorded last week.
There were notable exceptions to the otherwise negative trend, as shares in Cable & Wireless spiked higher on news of a bid approach and as investors cheered the appointment of a new chief at Ericsson.
But the overall tone remained gloomy as investors fretted about the limp outlook for economic growth and company profits, after data showing US productivity growth unexpectedly reversed in the final quarter of 2002 and a bigger-than-expected rise in unit labour costs.
That followed data showing a slump in German industrial orders.
News of a shock interest rate cut by the Bank of England, which the European Central Bank later declined to follow, failed to lift spirits but instead had some experts mulling whether the move was sparked by expectations of more bad economic news.
Some fund managers said the uncertainty flowing from a possible war in Iraq was not the main issue weighing on markets, and also doubted whether a swift US military victory would unleash a sustained rally in shares.
"The war thing is a bit of a smokescreen that is helping keep the growing threat of global recession out of the news," said Cesar Martinez, director of international equities at GesMadrid in Madrid. "It is also being used by companies as an excuse not to give guidance, which would in any case have been much the same than before or even worse."
The energy sector was Europe's worst performer, led by Shell/Royal Dutch, after the world's second largest oil firm posted Europe's biggest profit but undershot its target of 13-15 per cent underlying return on average capital employed.
Investors expect the crude price boom underpinning oil company profits to end soon, exposing the companies' struggle to maintain output growth and find new oil in a cost effective way.
Such pessimism hit other oil majors, such as BP and TotalFinaElf, which fell just under four per cent each.
Utilities also took a beating after investment bank Dresdner Kleinwort Wasserstein downgraded its rating on the sector to "neutral" from "overweight", saying earnings and yield ratios had peaked, leaving lesser upside potential for shares.
France's Vivendi Environnement and Suez fell around four per cent each, while Germany's RWE and E.ON sank 5.9 per cent and 4.5 per cent respectively.
Britain's Imperial Chemical Industries sank 6.9 per cent as analysts cut their earnings forecasts for the group, after it posted a flat full-year profit and said trading conditions were tough.
On Wall Street, the Dow Jones industrial average fell 0.5 per cent and the tech-laced Nasdaq Composite traded flat around the 1,300 points mark.
There was better news courtesy of Cable & Wireless, which surged by 10 per cent after Hong Kong telecoms unit PCCW confirmed that it had made a preliminary takeover approach to its British rival at the end of 2002.
Ericsson saw its shares leap 4.2 per cent after the group named a new chief, raising hopes of a swift turnaround at the loss-making group. Carl-Henric Svanberg, CEO at world No.1 lock maker Assa Abloy, will take the reins in April.
Shares in Assa Abloy sank 14.6 per cent on disappointment over Svanberg's departure and the company's below-forecast fourth quarter results.
Elsewhere, Novo Nordisk leapt 10 per cent after the Danish healthcare group said it would exceed its profit growth goal in 2003, after posting in-line earnings in 2002.
Dassault Systemes jumped 11.8 per cent after the French software maker posted a 22-per cent gain in fourth-quarter net profit and said it aimed to maintain operating profitability this year despite a tough market environment.