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European shares fell on Wednesday, tracking declines in other markets as concerns about China’s economy persisted, with bank and mining stocks lagging.
The pan-European FTSEurofirst 300 index, which rose 4.3 per cent on Tuesday, fell 2 per cent, as did the euro zone’s blue-chip Euro STOXX 50 index.
Germany’s DAX weakened by 1.6 per cent, leaving it some 20 per cent below a record high reached in April.
A rare bright spot was betting firm Paddy Power which surged 20 per cent as investors welcomed its plans to merge with Betfair.
The FTSEurofirst, which risks posting its biggest monthly loss since 2002, suffered its worst one-day drop since November 2008 on Monday. It rallied back on Tuesday after a Chinese interest rate cut boosted markets.
But many investors remain worried by signs of a Chinese economic slowdown and deflationary pressures resulting from Beijing’s devaluation of its yuan currency earlier in August.
“I think the downtrend is still intact because of the bigger picture of anaemic global economic growth. Any reasonable rally on the markets will be sold into,’’ said Berkeley Futures' associate director Richard Griffiths.
Miners fell sharply again, with the prices of copper dropping due to the prospect of slowing demand in China, which is the world's biggest metals consumer, while banks fell due to their exposure to the stock market sell-off.
Some brokers and fund managers are arguing for a European stock market recovery as signs of an economic pickup in the United States and Europe help to offset the weakness in China.
Morgan Stanley’s strategists expected the market to be higher in three months time.
They tipped 20 shares they considered to be “oversold’’, including chipmaker ARM, carmaker BMW and luxury goods group LVMH - all of which have been hit by the Chinese market turmoil.
Heather Miner, head of strategic advisory solutions at Goldman Sachs Asset Management, said stock market volatility could continue in the near term though a broader global economic recovery was intact.
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