LONDON, March 21 European shares dropped to a two-week closing low on Thursday, with investors taking more money off the table on poor German data and persistent jitters over Cyprus where two of its largest banks faced the risk of collapse.
The European Central Bank gave Cyprus until Monday to agree on a bailout or face losing emergency funds for its banks. The ultimatum came as the island's leaders struggled to craft an alternate plan to raise the 5.8-billion euro contribution demanded by the EU in return for a 10-billion euro bailout, without resorting to taxing bank deposits.
The FTSEurofirst 300 index provisionally finished 0.7 percent weaker at 1,190.51 points, the lowest close since March 7. The index, which hit a 4-1/2-year high last week, is headed for its worst weekly drop since November.
"There is a realisation that the situation in Europe is continuing to deteriorate. German PMI numbers were pretty shocking and Cyprus has now moved from economics to politics," David Scott, senior stock broker at Redmayne-Bentley, said.
"If the ECB does pull its liquidity, it's going to be another bad moment for the whole region. Cyprus is small but investors are concerned about the contagion effect."
Investors, already nervous over the development in Cyprus, negatively reacted to a survey showing Germany's business expansion lost steam in March, suggesting Europe's largest economy will post meagre growth this quarter.