UK retailers, food and beverage, and autos pressured European shares yesterday afternoon amid fears that consumer demand was wilting, with early falls on Wall Street ahead of key earnings reports, adding to the gloom.
By 1500 GMT, the FTSE Eurotop 300 index was down one per cent at 872 points.
Declining issues outpaced advancers by three-to-one in steady volume.
Shares in British clothing and food retailer Marks & Spencer Group sank 5.2 per cent to 306 pence after the group said it was forced to cut prices more than anticipated to shift stock.
The comments sent a chill through the already worried sector. One of M&S's suppliers, Northern Foods dropped 20.5 per cent to 125 pence.
France Telecom rose two per cent to 23.90 euros after successfully selling e5.5 billion of bonds, nearly twice the amount originally indicated, raising cash to refinance maturing debt and ease liquidity worries.
Defensive utilities were a rare, sector bright spot, led higher by France's Suez, Germany's E.ON and Vivendi Environnement of France.
On Wall Street, the Dow Jones industrial average was down 0.9 per cent at 8,764 points, while the tech-laden Nasdaq Composite one per cent to 1,445 points.
Economic numbers continue to trigger worries about a slowdown in recovery, while more US companies such as Intel keep spending on a tight reign, leaving the consumer virtually alone to underpin any economic growth.
US producer prices were flat in December in a report that showed tamer-than-expected wholesale inflation.
"The core PPI number was the smallest showing since 1973 and will prompt further talk of deflation amongst producers," said Ken Wattret, chief Euroland economist at BNP Paribas
"This is bad news for corporate earnings but it may also bolster the argument for fiscal expansion or even another US rate cut."
Dutch chip equipment making firm ASML sank five per cent to e8.41 after Intel, the world's biggest chipmaker and customer of ASML, said it would cut capital expenditure this year.
ASML reports today when investors will examine the strength of the company's order book going in to 2003.
Among the day's other standout stocks, French aluminium maker Pechiney dropped 7.3 per cent to e30 after UBS Warburg investment bank cut its rating on the stock to "reduce" from "buy", blaming weak markets and the strong euro.
In the food and beverage sector, Britain's Diageo shed 2.5 per cent to 652 pence, while Unilever dropped 1.8 per cent to e56.95, while sector leader Nestle was off 1.8 per cent at 300 Swiss francs.