LONDON: Heightened security fears in the wake of the Paris terror attacks and caution ahead of an update from the Federal Reserve weighed on European stock markets Wednesday.
Markets were feeling the "fear factor" once more after European indices had surged Tuesday, said Michael Hewson, chief market analyst at traders CMC Markets UK.
A woman blew herself up and a suspected jihadist was killed during a huge police assault in Paris Wednesday targeting the suspected mastermind of last week's attacks in the capital.
It came after a bomb threat Tuesday forced Germany's football friendly against the Netherlands to be cancelled.
"In a sign that financial markets remain skittish, the rally... was stopped dead in its tracks last night, on reports of a multiple bomb threat in Hanover," said Hewson.
German Chancellor Angela Merkel was rushed back to Berlin, and thousands of fans had to be evacuated from the stadium, although no explosives were found.
In midday deals, Frankfurt's main index was down 0.7 percent and Paris shed 0.9 percent.
Outside the eurozone, London lost 0.3 percent.
In foreign exchange, the euro meanwhile recovered to $1.0674 after hitting a seven-month low Tuesday at $1.0631.
The European single currency has come under pressure from expectations of more stimulus aimed at supporting the eurozone economy, according to analysts.
The likelihood of more help from the ECB was a factor behind Tuesday's rallies on European stock markets.
"Despite rising concerns that last week's attacks are likely to have a significant dampening effect on economic activity in Europe, this week's rebound has been driven by the belief that further policy action by the European Central Bank is now more likely," said Hewson.
The euro is being weighed down also by the likelihood of the Federal Reserve hiking US interest rates next month for the first time in almost a decade.
Signs of a pick-up in US inflation has reinforced those expectations, while traders will gain further insight into the Fed's thinking when the central bank releases minutes from its October policy meeting on Wednesday.
Talk of a hike comes despite a slowdown in global economies, particularly in China, while the central banks of Japan and Europe consider further stimulus measures.
"Current expectations place a 66 percent chance on US rates being raised in December, but this may change with today's Federal Reserve minutes," said Rebecca O'Keeffe, head of investment at stockbroker Interactive Investor.
"The prospect of a rate rise is a key risk for markets, with no one quite sure just what reaction there will be when the Fed finally pushes the button, so the continued uncertainty means market sentiment remains fragile."
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