European stocks tumbled Wednesday, with weaker-than-expected U.S. and Chinese data and a downbeat outlook from the Federal Reserve raising doubts over the sustainability of the global recovery. The euro fell against the dollar, while gold and oil prices declined.

The Stoxx Europe 600 index closed down 2% at 254.68. The U.K.’s FTSE 100 index fell 2.4% to 5245.21, France’s CAC-40 index ended down 2.7% at 3628.29 and Germany’s DAX finished 2.1% lower at 6154.07.

The Fed’s cautious comments on the U.S. economy set the tone for the session, after it said late Tuesday that growth “has slowed in recent months” and warned that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”

This was compounded Wednesday by similar comments from the Bank of England, which cut its economic growth forecast for the United Kingdom. Governor Mervyn King downgraded his expectations for GDP growth to 3% over the next two years and said inflation will remain above the bank’s 2% target throughout 2011.

At the same time, a slightly softer-than-expected Chinese consumer price index damped hopes of a smooth recovery. Data showed the country’s CPI rose 3.3% in July from the previous month, compared with economists’ expectations for a 3.4% increase.

European stocks extended losses in the second half of the session, after U.S. trade figures showed the deficit in June widened more than expected, to a record 21-month high of $49.9 billion.

The basic-resource and banking sectors, which are cyclical stocks whose fortunes are closely tied to the overall economy, were hit the hardest. Kazakhmys lost 5.9% and ArcelorMittal fell 3.9%, while Credit Agricole and Banco Santander ended down 4.8% and 4.4%, respectively.

On Thursday, the European Central Bank monthly report is due at 0800 GMT, while euro-zone industrial production data are at 0900 GMT. In the U.S., initial jobless claims and the import price index are at 1230 GMT.

At the time of the European stock markets close, the euro was at $1.2896 from $1.3187 late Tuesday in New York, and sterling last traded at $1.5660 from $1.5886. The dollar was at 85.37 yen from 85.35, having hit its lowest level since July 1995 after the Federal Reserve lowered its economic growth forecasts. The greenback was at 1.0585 Swiss francs from 1.0470 francs.

Late in Europe, light, sweet crude for September delivery was down $2.05 at $78.20 on the New York Mercantile exchange. Gold for December delivery was up 0.8% at $1,207.80 per troy ounce late in Europe on the Comex division of Nymex.

In major market action in France, STMicroelectronics tumbled 5% and shares of builder Saint-Gobain ended down 4.2%. In Germany, shares of utility giant E.On AG fell 1.5% after the firm reported a 9% decline in first-half net profit.

In the U.K., shares of Barclays PLC fell 5.7% and those of Lloyds Banking Group tumbled 6.8%.

In the mining sector, Rio Tinto shares fell 3.1% and Xstrata shares dropped 4.7%.

Exporters were also notably weak in Europe, with Philips shares falling 4.9% and ASML Holding shares dropping 5.6%.

Shares in Swiss human resources group Adecco declined 4.1%. Swiss dental implant maker Nobel Biocare dropped 11% after its second-quarter net profit dropped 31%, missing analyst forecasts.

Swiss food producer Nestle ended down 0.2%. Its first-half net profit edged up to 5.45 billion Swiss francs ($5.19 billion) from CHF5.07 billion in the same period a year ago, beating analyst estimates.

By Michele Maatouk

Tags: Chinese economy, economic growth, economic recovery, european stocks, Federal Reserve, global recovery, stock market, us economy

This entry was posted on Wednesday, August 11th, 2010 at 2:34 pm and is filed under Chinese Finance, Dow Jones Industrial, Global Economy, Global Financial, Market Finance, US Finance, european economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.