London: European shares fell on Tuesday to a 10-month low on worries that the global recovery was losing pace following a slew of disappointing economic data and concerns that a possible downgrade in the United States could impede growth.
Miners, whose performance is highly correlated to economic growth, were standout losers, with the STOXX Europe 600 Basic Resources index down 1.9%.
Copper producers Kazakhmys , Xstrata and Antofagasta were among the worst hit, down 2.3 to 3% as copper prices fell on global growth concerns.
Disappointing US manufacturing data on Monday and lower-than-expected US GDP last week have raised investor concerns that recovery could be stalling.
The possibility of a downgrade of the United States, which would push up the cost of borrowing and further hamper the economy, is now on the cards, despite the late deal to lift the debt ceiling in the United States to avoid a default.
“There are concerns related to manufacturing slowing down as well as scepticism about the US deal,” said Bob Parker, senior adviser at Credit Suisse, which has 1.28 trillion Swiss francs under management.
“There is a high probability of America being downgraded and that would increase the cost of capital to US corporates and would be negative for growth.”
Compounding the worries about growth were concerns the euro zone debt crisis was spreading to other highly indebted countries. The yield on Spanish and Italian 5-year bonds briefly reached parity for the first time since March 2010.
The Italian FTSE MIB fell 1.3 percent having earlier hit its lowest level in 27 months, underperforming the pan-European FTSEurofirst 300 index of top shares, down 0.9% at 1,058.23 points at 5:20pm.
The FTSEurofirst 300 index has fallen around 4.5% since worries intensified over US debt and is on track for its third consecutive day of losses.
The index also fell below a key support level of 1,062.69, representing a 23.6% Fibonacci retracement from its low in March 2009 to its February high, with the next support level seen at 982.97 - its 38.2% retracement.
Italian banks, whose performance is highly correlated to bond yields, were amongst the main fallers in Italy. UniCredit shed 2.6% and Intesa Sanpaolo was down 2.5%.
“We are negative on Europe and that view is not going to change our position until the authorities take action to deal with the sovereign debt issues,” said David Coombs, fund manager at Rathbone Brothers, which has 15.2 billion pounds under management.
“This would mean a common fiscal plan for European markets and a plan to restructure debt.”
WACKER CHEMIE FALLS
Disappointing earnings news added to the worries growth was slowing. There was heavy selling pressure in Wacker Chemie which dropped 9.7% in volumes nearly three-fold its 90-day daily average after second quarter profits were below expectations due to higher raw material costs.
Metro , the world’s No.4 retailer, fell 5.4% to top the worst performers list on the German DAX after second quarter results missed forecasts.