European stocks sagged on Monday, resuming their sell-off of the past 10 days after data showed China's economy losing momentum and also on worries that emerging market turmoil could erode European corporate results.
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Investors overlooked an upbeat German manufacturing survey - showing the sector's fastest growth in more than two years in January - and fretted instead about figures showing a slowdown in Chinese manufacturing.
Banking stocks were among the biggest losers, with Julius Baer sinking 5.1 percent after posting lower-than-expected annual results and saying clients transferring from recently-acquired Merrill funds were set to reach only the low end of its target range.
At 1130 GMT, the FTSEurofirst 300 index of top European shares was down 0.7 percent at 1,282.91 points. The benchmark index has lost 5.3 percent since peaking on Jan. 21, its steepest pull-back in seven months.
The euro zone's blue-chip Euro STOXX 50 index was down 0.7 percent at 2,992.64 points.
"The market hasn't been this difficult in 18 months. It's tough to find good buys, and we definitely avoid all the exporters with a significant exposure to emerging markets," said Arnaud Scarpaci, fund manager at Montaigne Capital.
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"The Euro STOXX 50 could easily fall back to 2,700-2,730 points, the low point hit last September. Meanwhile, volatility products are back in vogue."
The Euro STOXX 50 Volatility index, Europe's widely used gauge of investor sentiment based on put and call options on Euro STOXX 50 stocks, has jumped 53 percent since Jan. 21, signalling a surge in demand for portfolio protection.
INFLOWS INTO EUROPEAN STOCKS
Shares in companies with big exposure to emerging markets were hammered again, with cement maker Lafarge down 2.1 percent and lender Banco Santander down 1 percent.
Retailer Casino - which derives 56 percent of its revenues from emerging countries - tumbled 4.3 percent, hurt by a downgrade from Morgan Stanley analysts, who said in a note that the market value of Casino's emerging market assets has dropped by 2.6 billion euros in the past year.
Overall, European companies have a much bigger exposure to emerging markets than U.S. or Japanese companies, according to data from MSCI. Emerging markets represent about 24 percent of revenues overall for firms listed on the MSCI Europe index , versus 15 percent for the MSCI United States index and 14 percent for the MSCI Japan index .
Emerging market assets have recently been rocked by the prospect of reduced stimulus from the U.S. Federal Reserve.
The Fed announced last Wednesday a second cut in its quantitative easing programme, which had fuelled a sharp rally in global equities in 2013. Reduced U.S. stimulus has prompted investors to repatriate investments, triggering massive outflows and sending a number of local currencies plunging.
"It's not yet time to buy this dip," said David Thebault, head of quantitative sales trading at Global Equities.
"The crisis in emerging markets has taken most people by surprise and Western investors are repatriating funds. This move could take a while and bring even more volatility."
But despite the market's recent pull-back, data shows European stocks continue to see brisk investment inflows, in contrast with massive outflows rocking emerging market funds.
The latest data from fund-tracking EPFR Global showed that, while emerging markets equity funds posted their biggest outflow since the third quarter of 2011 in the week ended Jan. 29, investors continued to pour money into Europe equity funds.
Interactive map of emerging markets currency performance:
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