European Shares Slip on Lack of Fed Action

The euro hit an 11-month low against the dollar and stocks eased on Wednesday after the Federal Reserve warned Europe's sovereign debt crisis could hurt the U.S. economy but failed to signal fresh action to stimulate growth.

Euro/dollar slumped to its lowest level since January at $1.3005 as investors also speculated that more euro zone nations may be hit with debt downgrades in the near term given that a quick solution to the region's crisis remains elusive.

"If we get a further deterioration of the euro zone debt crisis, if we see a lot of countries being downgraded, or more problems in the banking sector, this $1.30 is not going to hold," said Arne Lohmann Rasmussen, chief analyst at Danske in Copenhagen.

The dollar index, which tracks the dollar's value against a basket of currencies, rose as high as 80.407.

Markets have been sliding since the start of the week as investors increasingly take the view that measures agreed at last week's EU leaders summit did not go far enough to resolve the two-year-old debt crisis.

European shares fell, tracking Wall Street lower with the key FTSEurofirst 300 index down about 0.7 percent. The heavyweight banking sector, strongly exposed to the euro zone crisis, lagged. The STOXX Europe 600 Banking Index fell 0.9 percent.

"There was a bit of expectation in the market yesterday about the Fed (announcing stimulus)," said Jeremy Batstone-Carr, strategist at Charles Stanley.

Global stocks as measured by the MSCI world equity index extended their losing streak into a third straight day with the index now down over 3.6 percent in the past month.

DEBT SALES EYED

Debt markets were on edge ahead of a planned sale in Rome of up to 3 billion euros of new 5-year bonds - Italy's first sale of longer-term debt since the European Union took steps towards greater fiscal integration last week.

The benchmark five-year bond yield was volatile, rising above 7.00 percent before easing to 6.76 percent, and poor demand at the sale may send 10-year Italian bond yields towards lifetime highs having already climbed above the 7.0 percent level considered unsustainable.

Germany will offer 5 billion euros of new 2-year bonds, and may struggle to attract demand after yields marked new euro-era lows this week after the ECB cut interest rates last week.

Although a five-year Bund auction last week saw strong demand, three out of four of the country's previous auctions drew less bids than the amount on offer.