European shares had their worst one-day fall in five sessions on Tuesday as concerns over the global economy and euro zone debt crisis, highlighted by bleak figures from Spain, weighed on equity markets. The FTSEurofirst 300 index closed down 0.7 percent at 1,088.62 points, marking its worst one-day fall since a 1.2 percent decline on August 21. The Euro STOXX 50 index fell 0.8 percent to 2,442.12 points.
Traders cited some concerns that a global gathering of central bankers in Jackson Hole, Wyoming, on Friday may fail to convince investors that new stimulus measures are imminent. "I think there's a lot of nervousness ahead of Jackson Hole," said AFS Brokers equity analyst Christopher Ho.
Spain's IBEX stock market slipped 0.9 percent after data showed the country falling deeper into recession and the economically important region of Catalonia said it needed a major rescue from Madrid. Worries that Spain will be increasingly impacted by the euro zone crisis, which has already led to sovereign bailouts of Greece and other smaller states, have led to new expectations of intervention from the European Central Bank (ECB).
The FTSEurofirst remains up by around 7 percent since ECB head Mario Draghi pledged on July 26 to do "whatever it takes" to protect the euro currency in the face of the region's economic crisis. This led to expectations that the ECB may resume its government bond-buying programme in September. However, opposition from Germany's Bundesbank to ECB government bond purchases, which it says would contravene European law by amounting to monetary financing of governments, has unnerved investors.
Michel Juvet, a partner at Swiss bank Bordier, said he was considering reducing some of his European equity exposure, or selling futures contracts on European equity indices, in case stock markets lost ground in September if the ECB does not turn its pledges into concrete action.
"I'm not expecting something bad from the ECB meeting. But, on the negative side, the markets have anticipated a lot and September is normally bad for markets. We have the possibility of a sell-off," said Juvet. The stock market rally over the course of August has taken place on the back of below-average trading volumes, indicating a lack of conviction in the rally, and volumes were below average again on Tuesday.
Trading volumes on the Euro STOXX 50 came in at around 50 percent of their average 90-day volumes, with a similar picture shown for Germany's DAX and France's CAC-40 stock markets. The STOXX European technology index was Europe's worst-performing equity sector, falling 2.1 percent. Telecoms group Nokia fell 7.8 percent after rising 7.7 percent on Monday, on signs it may not be able to immediately benefit from a move by Apple to ban sales of rival Samsung phones.
Dutch chip equipment maker ASML also fell 3.5 percent after Deutsche Bank downgraded the stock to a "sell". Although some traders have used the stock market rise in August to book profits by selling shares bought on the cheap in June and July, others said prospects of more central bank quantitative easing (QE) meant any market declines could be a good time to buy. "We think that QE has become much more likely now. We're minded to buy on the dips," said Darren Easton, director of trading at London-based Logic Investments.
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