MILAN: European shares fell sharply on Friday after the US Federal Reserve kept interest rates unchanged, fuelling concerns over the global economy and leaving investors guessing about when policy tightening will start.
The Fed kept rates at near zero in a bow to worries about the global economy, financial market volatility and sluggish inflation at home, but left open the possibility of a modest policy tightening later this year.
The pan-European FTSEuurofirst 300 index was down 1.9 percent and the euro zone's blue chip Euro STOXX index fell 3.03 percent, its worst drop since Aug. 24 when stocks plunged after a rout in Chinese markets. Wall Street was led lower by energy stocks.
Traders said uncertainty over when the Fed would eventually raise rates after almost a decade of policy easing was weighing on stock markets, along with the Fed's comments about pressures caused by signs of a slowdown in China.
"It's the uncertainty over the state of the economy, and a sense of unfinished business over when the Fed will make its move, that is weighing on markets," said Mirabaud Securities' senior equity sales trader John Plassard.
Banks, which often make more money in a higher interest rate environment, were among the worst performers while exporters such as carmakers and luxury good stocks -- for whom China is a key market -- also lost ground.
The STOXX Europe 600 Banks index fall 2.9 percent, while the European automobile sector declined 3.3 percent.
Shares in Hella, a German manufacturer of auto headlights and electronics, slumped 9 percent after issuing a profit warning due to problems in China.
French payments company Ingenico Group rose 7.3 percent as prospects it could stretch its finances to launch a bid for Worldpay evaporated on Friday when its privately-owned British rival announced plans for a London floatation, instead of a sale.
Germany's Wirecard, also seen in the running for Worldpay, rose as much as 1.7 percent before paring gains.
The Athens stock market rose 0.76 percent as investors bet Sunday's election would lead to a coalition government, posing minimal risks to its international bailout programme.
In spite of Friday's pull-back, some investors and analysts were still backing European shares, arguing that the region's equity markets would be supported by economic stimulus measures from the European Central Bank.
Lex Van Dam, hedge fund manager at Hampstead Capital, said equities remained his preferred asset class since returns on bonds and cash were still depressed by the low interest rates set by major world central banks.
Gerhard Schwarz, head of equity strategy at Baader Bank in Munich, said economic sentiment needed to improve to see equities back in favour and expected this could still happen in the fourth quarter.
"But until that happens I don't really think low interest rates for three months longer will do the trick," he said.
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