A benchmark European equity index logged its biggest one-day fall in nearly a year on Thursday, hit by worries over a possible end to US economic stimulus measures, with mining stocks among the worst performers. Some investors and traders were betting on a more protracted pull-back that could last over the next two months, although the majority still felt European equity markets would then recover to resume an upwards trajectory towards the end of 2013.
The pan-European FTSEurofirst 300 index closed down 2.1 percent at 1,229.94 points, marking its worst one-day fall since a 2.4 percent drop on July 23, 2012. The eurozone's blue-chip Euro STOXX 50 index also declined 2.1 percent to 2,776.78 points. European equities fell back on Thursday a day after US Federal Reserve head Ben Bernanke said the Fed could scale back stimulus measures at one of its next meetings.
Mike Turner, European equity options broker at XBZ Ltd, said investors had bought "put" options betting on a future fall on the Euro STOXX 50 that were due to expire in July with a strike price of 2,400 points - implying a potential fall of more than 13 percent on that index over the next two months. Peter Rice, head of investment strategy at Logic Investments, also felt the sell-off could deepen and advised investors looking to buy Germany's DAX to wait for another 3-4 percent fall before buying back into that index.
"I think this broad-based sell-off could be a little bit more protracted," he said.
Equity sectors seen as the most sensitive to any decline in the broader economy fared worst. The STOXX 600 Europe Basic Resources Index, which contains major mining stocks, fell 3.4 percent as signs of slower economic growth in China - which is the world's top metals consumer - impacted mining companies.
Despite the fall, XBZ's Turner felt the longer-term rising trend for equities was unbroken, with the FTSEurofirst up 9 percent since the start of 2013 while the Euro STOXX 50 is up by 5 percent. "We've had a bit of a shakedown, but the longer-term uptrend remains intact," he said. Hendrik Klein, who heads trading and asset management firm Da Vinci Invest, was also bullish, adding he bought the DAX at 8,300 points and then sold it at 8,320 on Thursday. The DAX closed down 2.1 percent at 8,351.98 points, falling back from all-time highs reached earlier this month. "There might be a bit of a short-term setback, but we think the long bull market will continue."