By Tommy Stubbington
European shares tumbled to their lowest in a week Tuesday,
rattled by the latest sign that the eurozone economy is
stagnating.
Further adding to the gloom, new rules from the U.S. Treasury
Department designed to deter firms from using overseas acquisitions
to cut their tax bill dented shares in the health-care sector.
Shire and AstraZeneca, which have been subject to takeover interest
from U.S. companies, both fell more than 5% after the move to slow
the wave of so-called inversion deals.
The Stoxx Europe 600 index was 1.3% lower midway through the
session, deepening Monday's decline.
The fall came after data firm Markit's monthly composite
purchasing managers index--a measure of activity in the
manufacturing and services sectors in the currency bloc--for
September fell to 52.3 from 52.5. The figure was the lowest level
in 2014 to date. A reading below 50.0 indicates activity is
declining, while a reading above that level indicates it is
increasing.
The weak data and setback for Europe's prospects for takeovers
are a "perfect combination" to put stocks under pressure, according
to François Savary, who oversees around $10 billion of assets as
chief investment officer at Swiss bank Reyl.
"If you can't count on M&A activity then you have to look
back at fundamentals. Today's data shows the recovery will be only
gradual which will have an impact on people's earnings
expectations," he said.
The eurozone data are likely to put further pressure on the
European Central Bank to come up with fresh stimulus measures to
prop up the flagging recovery. ECB President Mario Draghi signaled
Monday that the central bank remains open to a program of
quantitative easing if inflation stays too low.
"If there's too much bad news the prospect of more from the ECB
isn't enough to hold up markets. We already had a lot of QE
optimism in the price," said Christian Stocker, an equity analyst
at UniCredit.
France continued to lag behind other economies in the region,
with data there pointing to a deepening slump in business
activity.
French shares led declines, with the CAC 40 down 1.9%. Germany's
DAX fell 1.3%.
U.S. stocks were poised to extend Monday's decline, with futures
pointing to a 0.4% opening loss for the S&P 500. Changes in
futures aren't necessarily reflected in market moves after the
opening bell.
The latest disappointment for the eurozone overshadowed a
positive lead from Asian markets, where shares rallied after
better-than-expected Chinese manufacturing data. Worries about
slowing growth in China had been behind Monday's declines, which
were led by mining stocks as metals prices took a pummeling.
Mining firms outperformed the wider market Tuesday, with the
Stoxx Europe 600 basic resources falling just 0.1%.
"Although the data offer some near-term relief, China's growth
concerns are likely to continue to weigh the markets," said
analysts at Barclays.
The Australian dollar also staged a modest comeback, rising 0.4%
to $0.891 after tumbling to a seven-month low on Monday, pressured
by the slump in commodity prices.
In corporate news, shares in Austrian bank Raiffeisen tumbled
after it issued a profit warning due primarily to the Ukraine
crisis.
U.K. food ingredients manufacturer Tate & Lyle also fell
sharply after saying profit for the year will be lower than
previously expected.
Write to Tommy Stubbington at tommy.stubbington@wsj.com