MILAN: A disappointing rate outlook from the Federal Reserve dragged European shares down sharply on Thursday with several benchmark indexes hitting two-year lows on worries tighter monetary conditions could further weigh on sluggish economic growth.
The pan-European STOXX 600 index fell 1.1 percent by 0939 GMT, while Britain's FTSE 100 and France's CAC indexes fell 1.4 and 0.9 percent respectively, having all hit their lowest levels since at least December 2016.
After raising interest rates for the fourth time this year, the Fed signalled "some further gradual" rate hikes ahead, disappointing market expectations of a more dovish message from the world largest economy's central bank.
"Concerns in the U.S. about the real estate sector and leveraged loans remain. It's clear that interest rates cannot continue to rise for long without having important consequences for economic growth," said Edoardo Fusco Femiano, market analyst at brokerage eToro.
The selloff in Europe was broad-based with all sectors trading in the red but cyclical sectors such as miners and banks led the steep falls, down 2.6 and 1.4 percent respectively.
Worries over a slowing global economy, a trade spat between Washington and Beijing, and political instability have all been weighing on prospects for earnings growth at European companies.
The STOXX 600 is set for its worst yearly performance since 2008, having fallen more than 13 percent year-to-date.
The DAX, which is heavily exposed to China, was down 17 percent year-to-date, while Brexit-hit FTSE was down 13 percent. Italian stocks were also off 14 percent, weighed down by concerns over the country's public finances.
After a strong 2017, analysts have been cutting their forecasts for euro zone 2018 earnings growth steadily throughout the year. They now expect a growth of around 4.4 percent, down from a peak of 10 percent at the start of the year.
Estimates for 2019 have also been cut.
Among individual movers on Thursday, shares in aluminium company Norsk Hydro fell nearly 3.5 percent and was among the top fallers in Europe after the United States said it would lift sanctions against its competitor Rusal. The news depressed aluminium prices to 16-month lows.
Among other materials stocks, heavyweight miners Rio Tinto , BHP and Glencore all fell more than 2 percent. More than five out of six stocks listed on the STOXX 600 were trading in negative territory.
Top gainer was Shire, up 2.5 percent in a rebound following heavy losses in the previous session after its Japanese suitor Takeda Pharmaceutical was downgraded by credit ratings agency Moody's.