European equity markets went into reverse on Wednesday as manufacturing stocks weakened after data raised fears of a slowdown in capital spending, erasing the previous sessions gains.
Eurozone purchasing managers reported slowing growth in business activity in both the manufacturing and service sectors was driven by weakening new order growth.
By late morning, the FTSE Eurofirst 300 was down 2.2 per cent to 1,275.34, Frankfurt's Xetra Dax fell 3.2 per cent to 6,556.64, the CAC 40 in Paris lost 2.5 per cent to 4,720.10 and London's FTSE 100 shed 1.8 per cent to 5,638.6.
"It's becoming increasingly clear that GDP growth has started to downshift. We suspect the pace of weakening will intensify in coming quarters as manufacturing starts feeling the pain of currency appreciation and slowing world growth," said Marco Valli, chief Italian economist at UniCredit.
Private consumption did not seem to be strong enough to take the baton from softening investment activity, he added.
Earlier the main European indices had experienced follow-through buying after Tuesday's positive session after the Federal Reserve cut the Fed funds rate by 75 basis points to 3.5 per cent as pressure on US equity markets mounted.
Wall Street, which had been closed on Monday, had been poised for heavy losses ahead of the decision as traders prepared to catch up with the sell-off seen around Europe and Asia.
But the main US stock indicators, after a brief hour of turbulence that took the Dow Jones Industrial Average more than 400 points lower, finished Tuesday's session with fairly modest losses.
European insurers climbed after being recently battered by subprime concerns and fears of downgrades to monoline bond insurers.
Swiss Re climbed 3.7 per cent to SFr76.35 after Berkshire Hathaway, the investment vehicle owned by US billionaire Warren Buffett, took a 3 per cent stake and agreed to take a 20 per cent share of the company's property and casualty business over the next five years. Swiss Re added it intended to increase its share buyback programme.
UK insurer Prudential, meanwhile, gained 2.7 per cent to 635p after reports Chinese rival Ping An was set to take a stake.
Dexia, the Franco-Belgian bank, was flat €15.03, erasing gains earlier in the session. The stock had been battered over recent sessions because of its exposure to the bond insurance business.
Downgrades in the technology sector, however, left equity markets looking fragile. Alcatel-Lucent fell 4.6 per cent to €4.14 after Goldman Sachs cut its rating to "sell" from "neutral".
Truckmakers were weaker after UBS lowered its outlook on the sector. With fewer fleet renewals expected this year as a result of reduced capital spending, the broker revised down its estimates for European unit sales.
UBS downgraded Sweden's Scania to "sell" from "buy" and lowered its price target to SKr130 from SKr200, while Volvo was cut to "neutral" from "buy" and had its target lowered to SKr90 from SKr170. Germany's Man had its target lowered to €85 from €140.
Meanwhile, Deutsche Bank was also downbeat on Volvo, cutting its price target to SKr120 from SKr160.
"Volvo is going through a period of major change and we see added risk if the US market weakens further," said analyst Peter Reilly.
Volvo's B shares fell6 per cent to SKr86.75, while Scania B lost 6.1 per cent to SKr127.75 and Man lost 6.3 per cent to €78.27.