Lloyds TSB bank and cosmetics leader L'Oreal led a broad slide in European shares for a second day yesterday, but spirits group Diageo gained.
Wall Street also slipped on suprisingly strong producer price data, and as jitters over possible war in Iraq deepened.
A US official said a new resolution is expected next week to declare Iraq in "material breach" of a previous UN Security Council resolution. Washington and London maintain this would allow them to disarm Iraq by force.
"The US economic numbers were not really good, but they were not that bad that the market should carry on nosediving," said Peter Luedke, a dealer at Merck Finck private bank in Munich.
"The market is down mainly because of Iraq. So far as we have not got a clear picture, the situation will remain uncertain for the market," Luedke said.
By 1630 GMT, with only Frankfurt still officially trading, the FTSE Eurotop 300 index was off 0.8 per cent a 778 points.
The pan-European blue-chip benchmark is struggling to distance itself from last Thursday's six-year closing low of 769.54 points.
Declining issues eclipsed advancers by two-to-one in volume that turned heavy as selling kicked in late session after news that a new UN resolution on Iraq was planned.
Insurers were hardest hit as Germany's Hannover Re, the world's fifth-biggest reinsurer, cut back its 2002 profit forecast after its equity portfolio was hit by hefty writedowns last year in the third year of a bear market.
Hannover's shares slid four per cent to €23.15. Elsewhere in the sector, Dutch ING Groep, which reports on Friday, sank 3.2 per cent to €13.80 and its domestic peer Aegon was down five per cent at €11.16.
The DJ Euro Stoxx 50 index shed 1.6 per cent to 2,172 points. The euro zone share index needed to close above 2,291.66 points to confirm a floor in the market for now, said Steven Wesiak, a technical analyst at ABN AMRO bank in Amsterdam.
"The best case you can make for the market now is neutral," Wesiak said. On Wall Street, the Dow Jones industrial average slipped 0.7 per cent to 7,938 points, while the tech-studded Nasdaq Composite eased 0.2 per cent to 1,331 points.
The food and beverage sector was a focus as the world's biggest drinks group Diageo reported a solid first-half performance, but trimmed its expectations for the full year due to tough trading conditions.
Investors took the caution in their stride and sent the shares up four per cent to 616 pence, helping London's FTSE 100 blue-chip index end higher.
Norwegian beer-to-media group Orkla ASA saw its shares plunge to their lowest level in four years after weaker-than-expected results for the fourth quarter. Orkla fell 7.8 per cent to 94.50 Norwegian crowns.
Danish brewer Carlsberg sank 15.4 per cent to 231 Danish crowns after a bleak outlook for its key growth market Russia overshadowed a slightly higher-than-expected rise in 2002 earnings.
UK bank Lloyds TSB stumbled after UBS Warburg investment bank cut its rating on the stock to "reduce" from "neutral" and slashed its target price to 330 pence from 480 pence. The stock fell 2.7 per cent to 394-1/2 pence.
Meanwhile, the world's biggest cosmetic company L'Oreal of France reported a 10.3 per cent rise in 2002 earnings thanks to its salon and mass-market products, but the shares fell 4.3 per cent to €60 on worries over operating margin. Loss-making Swiss specialty chemicals firm Clariant shed 13.6 per cent to 14.25 Swiss francs as investors took fright after the group declined to comment on a Swiss media report saying it plans to cut over 2,800 jobs and raise up to 1.2 billion Swiss francs in fresh cash.
On the economic front, overall prices paid to US producers in January jumped 1.6 per cent, their biggest gain in over a decade, due to rising energy and auto costs, with the core reading also rising by more than expected.
The data triggered initial worry about rising inflation leaving the Federal Reserve with little room to cut interest rates, but economists dismissed this notion.
"I don't think it's a sign that US companies have pricing power again. The core producer prices went up due to car prices, but we know that is not going to continue, and we will see a big drop in February," said Darren Williams, a European economist at Schroder Salomon Smith Barney.
"I can't get worked up about the idea there is inflationary pressure out there apart from oil. Inflation is a non-issue for the Federal Reserve," Williams said.
The February survey of business activity by the Philadelphia Federal Reserve Bank is due at 1700 GMT, with a slight fall to 10.3 from 11.2 expected.