By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) -- European stocks were swathed in red on Thursday after weaker-than-expected preliminary data on China's manufacturing activity, which compounded some hawkishness within the minutes of the Federal Reserve's January meeting.

Economic data from the euro zone didn't help the Stoxx Europe 600 index much either, and it fell nearly 1% to 331.80, after closing up 0.1% on Wednesday. French consumer prices tumbled, while preliminary German purchasing manager index data were mixed.

Decliners heavily outweighed gainers for the index, with banks, drugs and mining stocks driving the losses.

Aerospace companies were also a drag, with BAE Systems PLC (BAESY) slumping nearly 9% after the company posted a fall in 2013 net profit and guided lower for 2014 earnings. A day earlier, Germany canceled a multi-billion-euro order for the Eurofighter Typhoon jets, and that overshadowed news about completion of talks to reprice a deal to sell that aircraft to Saudi Arabia.

Plenty of earnings news was moving other shares as well. Randstad Holdings NV slid over 8%. The Dutch staffing group said it swung to a profit in the fourth quarter of 2013 and revenue rose 1%, and also expects a gradual recovery to continue.

Shares of packaging company Rexam PLC fell 7.5% after posting a rise in full-year earnings as it won back North American market share, but also saw weakness in Western Europe and South America.

Aegon NV fell over 6% after the Dutch insurer posted a 60% slide in net profit owing to hedging losses.

On the upside, shares of Technip SA rose close to 6% after the French oil-services company said it expects operating margin at its key subsea unit of 12% in 2014, down from 13.5% in 2013. The company also said the board approved a 10% dividend increase.

Setting the stage for European stocks, Asia markets suffered losses across the board after sluggish trade data out of Japan and a contraction in China's manufacturing sector to a seven-month low, based on a preliminary HSBC/Markit "flash" version of its Purchasing Managers' Index.

Though analysts said the data may not be representing the full picture for Chinese factories, the data only added to some gloom triggered by Wednesday's Fed minutes that showed some members calling for a rise in rise in short-term interest rates as early as mid-2015.

Craig Erlam, market analyst with Alpari U.K., said investors need to remember that the China numbers fell into surprise negative territory only last month. "In January, this was the straw that broke the camel's back and prompted huge capital outflows from emerging markets as investors panicked about an emerging market crisis this year due to Fed tapering," he said.

While the same situation may not develop, Erlam said investors may just get more cautious on the back of this, given they've "seen how quickly one poor number can escalate into significant risk aversion."

In Europe, Markit reported the flash German manufacturing PMI fell to 54.7 from 56.5 in January, a two-month low. The German Services Activity Index was at a 3-month high of 55.4 from 53.1 in January. Euro-zone wide data will be released later.

French consumer prices posted a record fall in January, retreating 0.6% from December, which was more than expected from analysts polled by The Wall Street Journal.

The French CAC 40 was holding up better than most other indexes, down 0.5% to 4,318.92, after heavyweight Danone SA rose over 2% The company said sales growth would be steady this year as it posted a fall in net profit and operating profit also fell.

Also in Paris, Veolia Environnement SA shares rose close to 3% after announcing a EUR500 million ($685 million) contract to handle waste management in Buenos Aires.

The German DAX 30 index fell 1.3% to 9,537.74, with Bayer AG off 1.6% and BASF SE down 1.7% -- both are heavyweights in the index.

The FTSE 100 index fell 0.5% to 6,765.90.

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