* FTSEurofirst 300 falls 1.3 pct, lowest close in 3 months
* Blue-chip Euro STOXX 50 down 1.7 pct, hits 3-month low
* Worries about U.S. policy, Argentina default hit sentiment
* Europe's volatility index surges 9.4 pct to 3-mth high
* Shares in Adidas and Banco Espirito Santo slump
By Atul Prakash
LONDON, July 31 European shares fell sharply on
Thursday, with the euro zone's blue-chip index slipping to a
three-month low, on concerns of an earlier than expected
interest rate hike in the Uniteed States and a debt default by
Spanish stocks came under severe pressure, with Madrid's
IBEX dropping 2.1 percent, as traders cited worries over
Spanish companies' exposure to Latin America after Argentina
defaulted on its debt on Thursday.
Steep falls in some stocks following their earnings reports
also hurt sentiment. The broader market sell-off accelerated in
the afternoon after the U.S. market opened lower and extended
losses later in the session, with the Euro STOXX 50
falling 1.7 percent to its lowest since mid-April. Europe's main
volatility index rose 9.4 percent to a three-month high.
Investors were jittery after solid growth numbers from the
United States, the world's biggest economy, on Wednesday and
expectations that Friday's U.S. non-farm payrolls numbers will
surprise on the upside raised concerns that the Federal Reserve
might start raising key interest rates earlier.
"The strong GDP data and an improving economic outlook have
raised the risk of an early rate hike," Philippe Gijsels, head
of research at BNP Paribas Fortis Global Markets in Brussels,
said. "Tomorrow's U.S. non-farm payrolls data may further cement
the view that a rate rise could happen earlier than expected."
Data showed on Wednesday the U.S. economy rebounded sharply
in the second quarter as consumers stepped up spending and
businesses restocked, while Friday's data is likely to show U.S.
non-farm payrolls rose by 233,000 in July, which would mark the
sixth month with job growth above 200,000.
Disappointing earnings reports also put pressure on some
stocks, with German sportswear firm Adidas slumping
15.4 percent, the top faller on the FTSEurofirst 300,
which ended 1.3 percent weaker at 1,349.34 points, its lowest
close in three months and a weaker close for a second month.
Portugal's Banco Espirito Santo sank nearly 50
percent at one point to a record low after booking a 3.6 billion
euro first-half loss, and disappointing earnings at Spanish
healthcare firm Grifols sent its shares down 14
BES, which closed 42 percent lower, pushed Portugal's PSI 20
index 3.1 percent lower to underperform the wider
market, while Adidas dragged Germany's DAX 1.9 percent
down after saying it will scale back plans to expand in Russia
and overhaul its golf business.
However, overall results from European companies were
relatively positive, with shares in Sanofi rising 2.3
percent after it raised its full-year profit outlook, Royal
Dutch Shell gained 2.5 percent after reporting a 33
percent rise in quarterly earnings and CNH Industrial
up 3.8 percent on higher second-quarter profit.
"Despite some decent earnings from a number of blue chips,
the market is stuck in a range, with many negative catalysts
including Argentina's default at the forefront of investors'
minds," said Lionel Jardin, head of institutional sales at Assya
Capital, in Paris.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up
(Additional reporting by Blaise Robinson in Paris; Editing by