European shares suffer worst day since 2011 on Fed, China

LONDON: European shares posted their steepest one-day fall in 19 months on Thursday, hit by the prospect of reduced US monetary stimulus and fresh signs of sluggish Chinese economic growth.

The pan-European FTSEurofirst 300 index fell 3.1 percent to 1,143.99 points after the Federal Reserve said late on Wednesday a stronger US economy meant it would be likely to reduce its hefty asset purchases this year.

The Fed's quantitative easing programme (QE), along with similar moves from global central banks, has helped drive a 20 percent European equity rally in the past year in spite of a shrinking domestic economy and falling earnings expectations.

"The market has had its safety blanket taken away," Chris Wyllie, chief investment officer at wealth manager Iveagh, said.

Thursday's fall, the steepest since November 2011, saw only 17 of the 601 stocks in the STOXX Europe 600 index posting gains and all sectoral indexes close in negative territory.

Shares in financial services firms and banks , which are highly sensitive to trends in global markets and have been among top gainers in the past year, both shed 3.6 percent as global bonds and shares fell.

Mining, auto and consumer goods stocks ended down between 3.9 and 4.3 percent as data showed factory activity in China, the world's top consumer of metals and a key client for European exporters, pointed to a sharper second quarter slowdown.

Swiss luxury goods stocks Swatch and Richemont each fell 5.2 percent, which traders attributed to data showing a fall in Swiss exports.

Some analysts warned that low demand from emerging markets and the withdrawal of US monetary support would hit European stocks especially badly given that the domestic economy continues to contract, albeit at a more gentle pace than at the start of the year.

Steve Ruffley, strategist at InterTrader, recommended selling Germany's Dax index, a play on Europe's industrial production and Chinese demand, and buying the US S&P 500, which he sees as benefitting from the United States' superior economic growth.

The VSTOXX implied volatility index, which measures option prices on euro zone blue chips and is regarded as a gauge of future market jitters, rose 15.7 percent to 23.6, matching its May high.