European shares sink as Brexit turmoil derails recovery; banks, auto fall

LONDON: European shares reversed early gains, falling into negative territory on Thursday in a broadbased rout as British Prime Minister Theresa May's government was plunged into fresh crisis over Brexit, with autos and banking stocks leading the fallers.

The resignation of two British cabinet ministers including Brexit Secretary Dominic Raab triggered a rout in UK housebuilders and banks, while investors continued to fret about Rome's standoff with Brussels and Washington's row over trade with Beijing.

The pan-European STOXX 600 index was down 0.5 percent by 1036 GMT, with German, Spanish and French bourses firmly in negative territory. Britain's FTSE 100 was flat.

Optimism after China delivered a written response to U.S. demands for wide-ranging trade reforms ahead of an expected meeting between the two countries' leaders evaporated as worries over a global economic slowdown returned.

With the steady stream of resignations, the UK's deal with Europe over Brexit may be dead in the water.

"Risk appetite has taken a hit across the board, as this breakdown comes just as Italy ramps up its standoff with Brussels, and investors continue to fret that the great boom in tech earnings has come to an end," said Chris Beauchamp, chief market analyst at IG.

Autos hit the skids, down 1.4 percent after the Chinese government doused hopes that Beijing was preparing to cut auto purchases taxes in a bid to shore up demand and boost the world's second-largest economy.

Daimler was at the bottom of the DAX, also knocked by a Citi downgrade.

The banking sector, the worst performing industry along with autos this year, also dropped 1.8 percent led by UK banks as  sterling plunged after the cabinet resignations.

UK housebuilders - Barratt Development, Persimmon  and Taylor Wimpey - were also hit hard.

Capita Plc sank 7.8 percent to the bottom of the STOXX 600 index after a Financial Times report that the outsourcing group faces the loss of an NHS deal after a blunder over sending letters to women about their cervical screening results.

Basic materials stocks were among the few gainers, up 0.3 percent buoyed by higher copper and industrial metals prices and a weaker U.S. dollar.

British asset manager Intermediate Capital Group jumped 9.4 percent to the top of the STOXX and London's FTSE midcap index after reporting record net inflows.

French conglomerate Bouygues rose 3.4 percent after delivering better-than-expected nine-month profits.