* FTSEurofirst 300 down 3.1 pct, Euro STOXX 50 down 3.6 pct
* All sectors fall as Fed signals reduction to asset
* Weak Chinese data further depresses sentiment
By Francesco Canepa
LONDON, June 20 European shares posted their
steepest one-day fall in 19 months on Thursday, hit by the
prospect of reduced U.S. monetary stimulus and fresh signs of
sluggish Chinese economic growth.
The pan-European FTSEurofirst 300 index fell 3.1
percent to 1,143.99 points after the Federal Reserve said late
on Wednesday a stronger U.S. economy meant it would be likely to
reduce its hefty asset purchases this year.
The Fed's quantitative easing programme (QE), along with
similar moves from global central banks, has helped drive a 20
percent European equity rally in the past year in spite of a
shrinking domestic economy and falling earnings expectations.
"The market has had its safety blanket taken away," Chris
Wyllie, chief investment officer at wealth manager Iveagh, said.
Thursday's fall, the steepest since November 2011, saw only
17 of the 601 stocks in the STOXX Europe 600 index
posting gains and all sectoral indexes close in negative
Shares in financial services firms and banks
, which are highly sensitive to trends in global markets
and have been among top gainers in the past year, both shed 3.6
percent as global bonds and shares fell.
Mining, auto and consumer goods stocks
ended down between 3.9 and 4.3 percent as data showed
factory activity in China, the world's top consumer of metals
and a key client for European exporters, pointed to a sharper
second quarter slowdown.
Swiss luxury goods stocks Swatch and Richemont
each fell 5.2 percent, which traders attributed to data
showing a fall in Swiss exports.
Some analysts warned that low demand from emerging markets
and the withdrawal of U.S. monetary support would hit European
stocks especially badly given that the domestic economy
continues to contract, albeit at a more gentle pace than at the
start of the year.
Steve Ruffley, strategist at InterTrader, recommended
selling Germany's Dax index, a play on Europe's
industrial production and Chinese demand, and buying the U.S.
S&P 500, which he sees as benefitting from the United
States' superior economic growth.
The VSTOXX implied volatility index, which measures
option prices on euro zone blue chips and is regarded as a gauge
of future market jitters, rose 15.7 percent to 23.6, matching
its May high.
After a 3.6 percent fall on Thursday and a 9.3 percent
pullback since late May, shares in the Euro STOXX 50
index are now down for the year, leading some investors to start
looking for buying opportunities.
Citi's equity trading strategy team tipped using options to
bet on the Euro STOXX 50 rising to 2,700-2,750 by September,
from 2,586.45 points at the close on Thursday.
They argue a strengthening of the U.S. economy should be
seen as a positive for global equities and stress the Fed is
prepared to postpone the curbing of its stimulus programme.
Iveagh's Willye also said he was starting to consider
increasing its risk allocation, starting from the emerging
markets, which have seen the sharpest selloff in the past month,
followed by Europe.
"(Fed's chairman Ben) Bernanke has been very careful to say
that QE is open ended and on days like this people are in danger
of losing sight of this," Willye said.