European stocks hit by debt concerns, US data

European equity markets sold off on Thursday as a string of downbeat corporate outlooks and weak US data dampened expectations of an earnings recovery, while fears about the sovereign debt burden across the region added to the gloom. Markets fretted about the higher yields demanded in a Spanish sovereign debt auction and about rumours - later denied - of a credit rating downgrade for France, where presidential elections pose an additional risk.
France's CAC-40 closed down 2.1 percent and Spain's IBEX lost 2.4 percent. Implied volatility on Euro STOXX 50, a crude gauge of risk aversion, rose 2 percent, and yields on safe haven German bunds hit record lows. "At the moment there are concerns about Spain, you've had a bit of fear come back to the market," Jaspal Phull, portfolio manager at Stenham Advisors, said.
The FTSEurofirst 300 fell 0.5 percent to 1,040.79 points, with weakness in the euro zone partly offset by gains of 0.5 percent on Sweden's bourse and 0.7 percent in Denmark, as well as a flat print on Britain's FTSE 100. "There are elections coming up in France, Spain has to nail down its fiscal trajectory and Greece is in the melting-pot," John Haynes, head of research at Investec Wealth & Investment.
"The outlook for European equities is pretty good at these valuation levels if you are an investor rather than a trader. In 2 years-plus you will probably make a lot of money out of European equities. But ... in the short term it is difficult to see where the positive news will come from."
The Euro STOXX 50, which is limited to euro zone blue chips, fell 1.9 percent to 2,284.67 points, moving towards a key technical support at the 2,279 level which markets the 200 percent Fibonacci projection from the March 16-29 move. "Overall, due to weekly bearish signals, the long-term bias is for a downtrend continuation after consolidating in the 2,280-2,360 region and breaking the 2,279 support targeting 2,200, 2,070 and 1,880 over the next two months horizon," Dmytro Bondar, technical analyst at RBS, said in a research note.
Weaker economic data from the United States exacerbated Europe's losses in afternoon trade, with weekly jobless claims, housing sales and a key business conditions indicator all coming in below expectations. Investors have been looking to the United States - alongside emerging markets - to drive European corporate earnings while the euro zone economy languishes in recession.
Underlining the issue, nearly two-thirds of the STOXX 600 European companies who have reported first quarter earnings have missed forecasts, according to Thomson Reuters Starmine data. Germany's Volkswagen warned of a "very demanding year" ahead, sending its shares down 2.7 percent and helping make autos the worst performing sector on Thursday.
A forecast of weaker second quarter growth from Publicis send shares in the French advertising group 4.1 percent, while Nokia shed 3.6 percent after reporting a bigger than expected loss and ditching its sales chief. The biggest faller on the FTSEurofirst 300, though, was Cable & Wireless World-wide, which tumbled 8.2 percent in more than five times its average daily volumes after Tata Communications pulled its bid for the British company.