European shares closed lower for a third consecutive day on Thursday, but above an intraday 2-1/2 month low as stronger-than-expected US manufacturing data helped alleviate global economic and foreign exchange worries.
Data showing factory activity had risen to a five-month peak in February helped ease fears over the health of the U.S economy, but cyclical car makers and market-sensitive insurers continued to feel the heat of a three-day market slide.
The FTSEurofirst 300 ended 0.8 percent lower at 1,470.18 points, its lowest closing level since December 12, in a volatile session during which the index of top Europeans shares moved within an unusually wide 50-point trading gap. Thursday's losses brought to 5.2 percent the FTSEurofirst's fall over the past three sessions.
The VDAX-NEW index - which measures volatility expected in the month ahead based on options on the stocks that comprise Frankfurt's top-30 DAX index - rose 4.5 percent to 19.65, its highest closing level since August 11.
Global equity markets started tumbling on Tuesday after a sudden plunge in Chinese stocks, while the ongoing Iranian nuclear dispute and concerns about the US mortgage market added to investors' anxieties.
Concern that investors were closing down bets on risky assets they had financed by borrowing in yen also continued to rattle sentiment even though some market analysts warned against any panic selling.
"The factors supporting the 'yen carry-trade' are still there," said Jean-Pierre Hellebuyck, Vice-President of Axa Investment Managers.
"Japanese interest rates are at 0.5 percent, while Fed Funds are at 5.25 percent and ECB rates at 3.5 percent. The yen carry-trade mechanism, which is liquidity creative, is therefore likely to get going again, probably after a period of contraction, synonymous of unpleasant turbulences and falls."
Around Europe, London's FTSE 100 shed 0.9 percent, while Paris's CAC 40 and Frankfurt's DAX both fell 1.1 percent, Madrid's IBEX closed 1.3 percent lower and the AEX slid 1.7 percent in Amsterdam.
In Frankfurt, Deutsche Telekom shares fell 3.8 percent after Europe's largest telecoms operator posted a 43 percent drop in annual net profit, which it blamed on fierce competition and staff costs.
Insurers were among the biggest decliners on concern the market's decline will have shrunk the size of their equity portfolio, with Aviva hit more than rivals after posting a 12 percent rise in 2006 earnings clouded by one-off charges.
Elsewhere, SAP shares gained 3.3 percent on a magazine report that private equity firm Silver Lake Partners wanted to buy a stake in the German software maker. But Airbus parent EADS fell 5 percent after the planemaker's employees stopped working at three German production sites in protest against job cuts and closures in the company's restructuring plan.