European shares fell on Thursday as investors, already jittery over Cyprus's debt crisis, were confronted with data showing Germany's business activity lost steam in March.
The data, which suggested Europe's largest economy would eke out meagre growth this quarter, outweighed a pick-up in Chinese factory activity and a commitment by the U.S. Federal Reserve towards its stimulus programme.
Markit's flash composite Purchasing Managers' Index (PMI) measuring growth in both manufacturing and services, which together account for more than two-thirds of the German economy, fell to 51.0 from 53.3 in February.
Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, tempered however that PMI data has the propensity to be very volatile, and would therefore "not read too much into the figure".
"This is one reading; a lot of confirmation is needed over the next couple of months to confirm that this is indeed worse… but it is clear that it is enough against the background of Cyprus to spook the markets a bit," he said.
Germany's Lanxess was among the top fallers on Thursday, suffering a 6.3 percent drop, after the synthetic-rubber maker warned that underlying core earnings would drop sharply in the first quarter, the latest supplier to take a hit from anaemic European car markets.
Cyprus's crisis preyed on investors' minds, with the island's government endeavouring to avert a financial meltdown and ordering banks to stay shut until next week, after the debt-stricken country rejected the terms of a European Union bailout.
Strong macro data from China, showing a pick-up in growth in the country's vast manufacturing sector, and a statement from the Fed, which said it would stick to its $85 billion monthly bond-buying stimulus, helped keep a floor under losses.
The FTSEurofirst 300 was down 0.5 percent at 1,193.22 by 0917 GMT, led down by mining stocks, among the most sensitive to market nervousness. The index, with a 0.8 percent fall so far this week, is on course for its biggest weekly drop since November.
Some investors remained relatively unfazed about the situation in Cyprus, which they viewed as a short-term worry.
"I think (Cyprus) is very much just a stumbling block and nothing else. I really don't think it's going to stop the market and I don't see a big sell-off on the back of it at all," said Terry Torrison, managing director at Monaco-based McLaren Securities.
"Personally I think things like China are much more important."
