LONDON: European stock markets slid on Thursday as investor enthusiasm waned over the US fiscal cliff deal that had sparked an impressive global rally on the first trading day of the year.
London's benchmark FTSE 100 index of top companies dipped 0.14 percent to 6,019.16 points in late morning deals, Frankfurt's DAX 30 index dropped 0.27 percent to 7,757.51 points and the Paris CAC 40 fell 0.54 percent to 3,713.64.
All three indices surged by more than two percent on Wednesday, in a bright start to 2013, after US lawmakers agreed a deal to avert the so-called fiscal cliff.
However, while Democrats and Republicans passed a compromise, they only delayed the imposition of spending cuts for two months, meaning another debilitating stand-off is almost certain at the end of February.
"After the crazy rally generated by the fiscal cliff deal that ignited risk appetite, the euphoria clearly dissipated," said trader Anita Paluch at Gekko Global Markets.
Madrid's Ibex-35 index lost 1.04 percent and Milan's FTSE Mib reversed 0.46 percent on Thursday, one day after both key peripheral eurozone countries had soared by more than three percent.
In foreign exchange activity, the euro eased to $1.3147 from $1.3184 late in New York on Wednesday, when it had struck a two week high at $1.3300. Gold prices nudged lower to $1,684.32 an ounce on the London Bullion Market from $1,693.75.
Global stocks began 2013 with a bang on Wednesday after Washington sealed a last-minute deal to avoid the "fiscal cliff" of huge tax rises and spending cuts which would likely have pushed the United States back into recession.
"Even though the vote averted the immediate pain of tax hikes on most US households, some key issues remain unresolved and focus will soon turn to fresh talks on raising the US debt ceiling to allow the government to continue borrowing," said Lloyds Banking Group strategist Eric Wand in a research note.
"In particular, there is a concern that Republicans could be more obstinate on spending and entitlement reform as many feel that they gave up too much in this latest deal.
"This fear, compounded by a fresh round of negotiations over the next few weeks, will soon come back to haunt the market."
Asian equities traded mixed on Thursday, with concerns over upcoming fights in Washington hurting sentiment.
The yen clawed back some of its losses against the euro and dollar but remains under pressure on expectations of further monetary easing by the Bank of Japan.
Sydney rose 0.74 percent to hit the highest since May 2011, and Hong Kong added 0.37 percent, while Seoul slipped 0.58 percent. Shanghai and Tokyo were closed for public holidays.
Relief that Washington had reached a last-minute deal had sent global markets soaring on Wednesday, with Hong Kong hitting a 19-month high and Wall Street also starting the year with big gains.
The Dow jumped 2.35 percent, the S&P 500 added 2.54 percent and the Nasdaq surged 3.07 percent.
There are also worries about the lifting of the US debt ceiling, also at the end of February, with analysts saying the country could see a repeat of the row in summer 2011 that saw Washington's credit rating downgraded for the first time.
Meanwhile on Friday, investors will are awaiting the release on Friday of US jobs data for a better idea of the state of the world's number one economy.