London: European shares plunged to 14-month lows on Friday following a global sell-off on growing concerns the U.S. economy could be heading towards another recession and on jitters Italy and Spain could be the next casualty of the euro zone debt crisis.
Miners featured among the top decliners on worries a slowing global economy would severely hurt demand for key raw materials. The European sector index fell 2.3%, while global miner BHP Billiton fell 1.8%.
At 12:23pm, the FTSEurofirst 300 index of top European shares was down 1.4% at 978.50 points after touching 961.45, the lowest since May of 2010. The index, down for a sixth straight session, has fallen nearly 10% this week and is down about 13% so for this year.
“The economic outlook is stressing investors to a great degree and sentiment is likely to remain extremely fragile,” said Keith Bowman, equity analyst at Hargreaves Lansdown.
“The US economy has been slowing and is moving into a phase where we are going to see spending cuts enforced. Investors are concerned as to where future growth will come from with this backdrop of debt for so many governments.”
Investors stayed nervous ahead of widely-watched US monthly non-farm payrolls data as well as the US unemployment rate, due at 6:00pm, which could provide hints about the extent of the damage in the labour market following a string of bleak macroeconomic data.
Economists see payrolls up by 85,000, according to a Reuters survey, after a tepid 18,000 gain in June. The unemployment rate is expected to hold steady at 9.2%.
Automobile shares, which have outperformed the broader market this year, also fell sharply on concerns about weaker sales for vehicles. The sector index fell 1.6%, while Volkswagen dropped 4.4%.
Charts painted a bleak picture after the Euro zone’s blue chip Euro STOXX 50 index fell to two-year lows on Friday. It was last down 0.4% at 2,402.64 points.
Technical analysts said the index’s retreat from the top amounted to more than 21%, putting the index firmly into a bear-market territory.
“At current levels, the index has retraced fully 50% of the rally that began in March 2009. If this level fails to hold, which now seems likely, the implication is that it is heading for a 61.8% retracement of that move, giving us a near-term downside target of around 2,263,” said Bill McNamara, technical analyst at Charles Stanley.
Banks, which suffer in difficult economic environment, also lost ground. European banks , which have been under pressure this year due to their heavy exposure to peripheral euro zone countries, fell 0.7% on worries the euro zone debt crisis was spreading.
Royal Bank of Scotland crashed 6% after it posted a loss after taking a big hit on Greek bonds, while UK rivals Barclays and Lloyds slumped 7.7% and 7% respectively.
“What we have seen over the last couple of days is a realisation by investors that we still face some massive structural challenges in Europe and the Unites States and that throwing money at it, bailing out and buying bonds etc., will not fix these,” said Darren Sinden, senior sales trader at Silverwind Securities.