Europe's main stock markets fell sharply on Tuesday on news that US manufacturing declined for the third straight month and as investors weighed prospects of new bond-buying by the European Central Bank.
At close, London's FTSE 100 index of top companies was 1.50 percent lower at 5,585.61 points, Frankfurt's DAX 30 lost 1.17 percent to 6,932.58 points, and in Paris the CAC 40 fell by 1.58 percent to 3,399.04 points.
Shares in debt crisis flashpoints, which had risen all day lifted by recent comments from ECB president Mario Draghi, pared gains by close with Madrid stocks up 0.73 percent and Milan down 0.29 percent.
Borrowing prices for Spain and Italy meanwhile fell sharply with investors increasingly expectant the ECB will decide to come to the aid of the eurozone's most fragile members at a policy meeting on Thursday.
On the secondary markets the rate of return on Spain's benchmark 10-year debt fell to 6.570 percent from 6.853 percent late on Monday, while Italian benchmark yields fell to 5.669 percent from 5.771 percent.
In foreign exchange deals, the euro fell to $1.2562, compared with $1.2593 late in New York on Monday.
US stocks, which had opened flat as investors returned from a three-day weekend, nosedived after the announcement of poor manufacturing data for August.
"The details of of the manufacturing survey are worrying," said Alexandre Estiot of BNP Paribas.
The Institute for Supply Management said its PMI index of US manufacturing stood at 49.6 percent in August, falling from 49.8 the prior month. A reading below the 50 line suggests the sector is contracting.
At around 1600 GMT, the Dow Jones Industrial Average was down 0.72 percent, the broad-based S&P 500 was off 0.49 percent and the tech-rich Nasdaq fell 0.63 percent.
Europe's main markets had risen across the board on Monday on hopes over the outcome of the ECB's latest monetary policy meeting that concludes this Thursday.
In Brussels on Monday, Draghi defended controversial measures taken to tame the eurozone debt crisis, including buying up government bonds, European MPs said.
MEPs said Draghi told them that the central bank had a responsibility to intervene when necessary.
Draghi, who made no public comment, said that buying government bonds of up to 3-year maturities on the secondary market did not amount to bailing out spendthrift euro members -- a charge levelled by many German politicians.
ECB bond buying in the past was justified, he said according to MEPs who spoke after his briefing, to help stabilise and protect the 17-nation eurozone.
"In order to help the struggling eurozone economies with their costs of debt, Draghi mentioned buying bonds up to three-year maturities," said Anita Paluch, Gekko Global Markets analyst.
"This has been reflected in the Spanish and Italian short term bonds, falling to multi-months lows."
But investor sentiment took a knock after Moody's downgraded the outlook on the European Union's long-term AAA credit rating from stable to negative.
Moody's said its move reflected credit risks faced by key European Union budget contributors, including Britain, France and Germany, all of which now have negative outlooks due to the continent's economic crisis.
In Asia, markets fell on Tuesday in subdued trade.
Hong Kong ended 0.66 percent lower, Tokyo slipped 0.10 percent, Sydney fell 0.61 percent, Seoul lost 0.29 percent and Shanghai retreated 0.75 percent.
Source: http://news.yahoo.com/european-stocks-diverge-amid-ecb-focus-112855713.html
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