European shares hit a 12-week low on Tuesday as fresh concerns about global growth and pressure on some highly indebted euro zone countries hurt cyclical stocks, with charts for a major blue-chip index showing scope for yet further declines.
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Financials, miners and automakers bore the brunt of the sell-off after trading in Europe resumed following the Easter holidays, reacting to Friday's weak U.S. jobs report and Tuesday data showing no growth in France's economy in the first quarter.
A sharp decline in investors' appetite for riskier assets such as equities was also reflected in the Euro STOXX 50 volatility index, Europe's main barometer of anxiety, that surged 20 percent to a three-month high.
The FTSEurofirst 300 index of top European shares finished 2.5 percent down at 1,026.15 points, the lowest close since mid-January. It has fallen 7.5 percent since hitting an eight-month high in March and is up just 2.5 percent this year.
"Investors are in a risk-off mode, with the U.S. job numbers and the situation around Spain becoming an excuse for the sell-off. I expect the market to fall 3 to 5 percent in the next couple of weeks," Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said.
"I would advise investors to take some more profits. If the market falls 10 to 15 percent, you could start buying again as you would expect the central banks to intervene to support the market. Focus on defensive sectors such as pharmaceuticals and food and beverages and companies that give high dividends."
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Europe's debt problems prompted investors to sell out of banks, with the STOXX Europe 600 banking index down 4.2 percent. Italian banks were a major drag after the country's bond yields rose again, resulting in a 5 percent fall in the country's FTSE MIB share index.
Yields on riskier Italian and Spanish debt climbed further, a trend that began last week in the wake of a disappointing Spanish bond auction, on concerns that a weaker U.S. economy could hurt indebted European economies that are already facing harsh austerity measures.
Miners were the second-biggest decliners, with the STOXX Europe 600 Basic Resources index falling 4.2 percent on concerns about a drop in demand for raw materials and as data showed China, the world's top metals consumer, imported 4.6 percent less copper in March.
However, Randgold Resources rose 5.2 percent on hopes of an easing of the crisis in Mali, home to two thirds of the miner's production, following the resignation of the president and after it confirmed its production target for the year.
The Euro STOXX 50 fell 3 percent to 2,321.53 points. Technical analysts saw further declines in the near term after the index fell below some important support levels.
"The market is aggressively bearish. A close below the 200-day moving average is an important sign for further downside. The next downside target would be 2,307 - a low in January," Lynnden Branigan, technical analyst at Barclays Capital, said.
He saw another support at around 2,280, its 76.4 percent retracement of a rise from mid-December 2011 to mid-March.
Investors will focus on the earnings season that begins with U.S. aluminium giant Alcoa reporting late on Tuesday. Investors will scrutinise numbers in the coming weeks to see how a slow pace of economic recovery has impacted on profit margins.
JPMorgan stayed cautious in the near-term on equities due to the loss of macro momentum and said it was unlikely that first-quarter results would restore confidence.
"We believe it is unlikely to provide a significant boost to the market. Weaker topline growth and stalling macro momentum argue against strong improvement in corporate guidances," the broker said in a note.
However, HSBC remained positive on the market's long-term outlook saying that the largest tail risk to investing in equities had been removed. Its year-end target for the MSCI all country index is for a 7 percent rise.
Automobile shares also suffered heavily, with the sector index falling 4.1 percent on concerns about economic growth outlook that could hurt sales of vehicle demand.
Fiat fell 6.4 percent as Brazil, a key market for the automaker, after the country said it had no plans to offer further incentives for car producers.