European shares fall on global growth fears

LONDON: European shares fell sharply on Thursday as a downbeat sales outlook from a US tech bellwether Dell, fiscal tightening pressure in China and global growth downgrades inflamed investor fears over stalling economic recovery.

At 0815 GMT, the FTSEurofirst 300 index of top European shares was down 1.4 percent at 958.21 points.

The euro zone's blue-chip Euro STOXX 50 index was down 1.5 percent at 2,295.97 points.

"At the start of the week, we were expecting a selloff and it hadn't materialised, with people selectively putting money into a few stocks keeping the froth alive, and so I think it is overdue," the head of institutional trading at a UK-based investment bank, said.

In the United States on Wednesday, Dell's sales gloom fanned worries weak economic growth will hurt earnings in the third quarter, prompting a lacklustre close on Wall Street.

China's benchmark stock index fell 1.6 percent on Thursday, as a rise in central bank bill yields sparked worries over a potential interest rate rise, which is seen as crimping appetite from the world's fastest growing economy.

Separately, Deutsche Bank cut its projection for China GDP growth to 8.9 percent for 2011 from 9.1 percent and to 8.3 percent for 2012 from 8.6 percent, largely reflecting the downgrade in export outlook due to slower growth in the United States and Europe.

Adding to the concerns over economic outlook, analysts at Morgan Stanley became the latest to cut their macro growth forecasts, traders said.

Citing a note from the broker, traders said Morgan Stanley cut its GDP forecasts for the euro area by a full percentage point over 2011/12 and expects GDP growth to average only 0.5 percent next year.

Reflecting the macro challenges at the corporate level, Swiss cement maker Holcim was the biggest faller across all sectors, sliding 7.3 percent after it reported forecast-lagging second-quarter results, hit by a strong Swiss franc and raw materials costs.

Vallourec shed 3.2 percent as Goldman Sachs downgrades its rating on the maker of seamless industrial tubes for the energy sector to "neutral" and cuts its earnings forecasts by up to 47 percent between 2011 and 2013.

"These are periods when profits fall by 10 percent or more. Our analysis suggests the probability of a global profits collapse is rising but low," said Robert Buckland, analyst at Citigroup, adding he believes a recovery in stock prices is the most likely outcome from here as a corporate profits recession is unlikely.

Around Europe, the UK's FTSE 100 index was down 1.3 percent, Germany's DAX index down 1.7 percent, and France's CAC 40 down 1.5 percent.

"I think we need to get the (FTSE) down to around 5,000. The world's slowing down; unemployment rates are going through the roof, all the leading indicators in the US are suggesting times are tough and you've got to rerate the market accordingly," said the head of institutional trading at a UK-based investment bank.

Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a one-year forward price-to-earnings of 9.6, against a 10-year average of more than 13.

Investors fled to safe haven areas such as gold as they looked to take defensive positions in the face of macro economic difficulties.

The Swiss franc remained near recent highs although weakened against the dollar on hopes the Swiss central bank would take further steps to cool the currency's recent surge.

Copyright Reuters, 2011