European shares hit again by Chinese manufacturing data

LONDON, September 1

European stocks fell on Tuesday, extending the losses of recent weeks after weak manufacturing data from China again raised concerns over the health of its economy.

The pan-European FTSEurofirst 300 was down 2.1 per cent at 1,401.75 points by 1044 GMT, with basic resources stocks down 3.2 per cent, making them the top sectoral losers. Asian markets also fell.

"As it stands we've pretty much wiped off any of the gains we saw last Friday ... it does seem like this could be another return to the lows we saw last week, particularly if we don't see any effects from the Chinese interventions any time soon," said Brenda Kelly, head analyst at London Capital Group.

Activity in Chinese manufacturing contracted at its fastest pace for three years in August, an official survey showed on Tuesday, reinforcing fears of a sharper slowdown in the world's second largest economy despite a flurry of government support measures.

China's official manufacturing Purchasing Managers' Index (PMI) fell to 49.7 in August, denoting contraction, after recording 50.0 in July.

"The PMI was below 50, which is a psychologically important level and puts into real focus the fact that China is contracting," ETX Capital senior sales trader, Joe Rundle, said. "With the weak data coming out, we're going to see the negative sentiment from the last few weeks continuing," he said.

Investor fears over Chinese growth contributed to a drop in European shares in August, with the FTSEurofirst 300 completing its biggest monthly loss in four years on Monday.

Germany's DAX, which has substantial exposure to China, fell 2.3 per cent, underperfoming despite data that showed factory activity at a 16-month high and a jobless rate at a record low.

In aggregate, euro zone manufacturing growth eased last month, with Italian and French factory PMIs falling.

Among individual fallers on the STOXX Europe 600, Man Group dropped 4.2 per cent. The hedge fund fell after Bloomberg reported that the boss of its China unit was taken into custody as part of an investigation into recent market volatility.

Bucking the trend, Sweden's Elekta rose 6.3 per cent after reporting first quarter earnings, making it the biggest riser on the STOXX Europe 600. Traders cited an upbeat sales forecast as supporting the health care firm. 

UK shares head for worst one-day fall in over a week

UK shares fell more than 2 per cent on Tuesday, set for their worst one-day fall in over a week after weak manufacturing data in China — the world's biggest commodity consumer — rattled global markets.

All FTSE 100 stocks were in negative territory at 1034 GMT on Tuesday, London's first trading day of the week after a public holiday on Monday.

Policymakers worldwide have turned more interventionist with a surge in market volatility to levels not seen since the 2008 financial crisis. China's central bank has already repeatedly intervened to stabilise the yuan since its August 11 devaluation sent shockwaves through global markets.

"We are sellers across the board," said Mark Ward, head of execution trading at London-based Sanlam Securities. "People are getting back from holidays and trying to make sense of what is going on.

"The China headlines are not helping but I would say it's probably more down to sentiment than a huge shift in the actual economic outlook."

Billiton were down more than 4 per cent as metals prices fell on China demand fears.

In the mid caps, China worries also hit shares of hedge-fund manager Man Group, down 4.5 percent after the boss of its China unit was reportedly taken into custody as part of a probe into recent market volatility. — Reuters