European shares fell sharply for a second straight session to a six-week closing low on Thursday as more US data raised concerns about the pace of recovery in the world's top economy. A 9.2 percent surge in the Euro STOXX 50 volatility index, one of Europe's main barometers of sentiment, suggested a fall in investors' appetite for risk. Analysts said equities could drop further before bouncing back after the summer.
The uncertain outlook prompted traditional long-only funds to stay on the sidelines, analysts said, adding investors had been taking refuge in defensive sectors such as utilities and pharmaceuticals, at the cost sectors such as mining. Miners topped the losers' list, with the STOXX Europe 600 Basic Materials index falling 2.6 percent, tracking steep losses in metals that slipped on concerns about demand for raw materials. Rio Tinto fell 2.6 percent.
The FTSEurofirst 300 index of top European shares finished 1.3 percent lower at 1,115.92 points - the lowest close since mid-April. The index is down 0.5 percent this year. "Given new fears emerging over the underlying health of the US economy and just less than thirty days before the Fed finally turns the taps off from quantitative easing 2, worries over the US outlook are certainly justified," said Howard Wheeldon, senior strategist at BGC Partners.
Energy shares tracked weaker crude oil. The STOXX Europe 600 oil and gas index fell 2 percent in high volumes. The FTSEurofirst 300 index closed below its 50-day and 200-day moving averages. Technical analysts said there was a risk the market could fall about 5 percent, from where a sustainable rally could emerge. The STOXX Europe 600 banking index fell 1.2 percent, while Greek banking shares dropped 0.3 percent.
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