European shares slipped on Wednesday, ending a two-day rally, as positive market sentiment following bold government moves to stem the financial sector meltdown evaporated and recession fears rose to the fore.
At 1140 GMT, the FTSEurofirst 300 index of top European companies was down 2.7 percent at 939.74 points, after gaining a record 10 percent on Monday and 3 percent on Tuesday.
On Wednesday, basic resources stocks were the top weighted sectoral losers, with miners and steel makers particularly hit. But healthcare and telecom stocks bucked the downward trend.
Recession fears returned after trillions of dollars pledged for bank bailouts from Europe to Asia helped allay fears of an imminent financial meltdown.
"We are not quite out of the forest, but at least the trees have stopped collapsing on us," said Hank Potts, equity strategist at Barclays Wealth.
"Investors are starting to realise that a systemic meltdown of the financial sector is less likely, but worries have shifted to macroeconomic concerns as many Western countries have glum 2009 GDP forecasts," he said.
EU leaders meet in Brussels just days after stumping up 2.2 trillion euros ($3 trillion) to rescue European banks and jolt frozen money markets — at the heart of the worst financial crisis since the Great Depression — into life.
European leaders will press for an overhaul of the world's financial structures after Asia joined western bastions of capitalism in bailing out banks to avert a financial meltdown.
Southeast Asian nations backed by Japan, South Korea, China and the World Bank were the latest to join the global rescue effort, agreeing on Wednesday to create a multi-billion fund to buy bad debt and help banks.
The United States on Tuesday offered to take $250 billion worth of stakes in nine top banks.
But concerns remained that the rescue would come at a huge economic cost and do little to repair the damage already done by a 14-month credit crunch, which has slowed the economy.
COMMODITIES FALL
Commodity shares fell, tracking losses in metals and crude oil. Crude fell 3.4 percent to trade below $76 a barrel, a far cry from all-time highs of around $147 hit earlier this year.
BP, Royal Dutch Shell, gas producer BG Group and Tullow Oil shed between 2 and 7.5 percent.
Weaker metals prices dragged down mining shares, with BHP Billiton, Anglo American, Lonmin, Kazakhmys, Xstrata and Antofagasta falling between 10.9 and 18.5 percent.
Global miner Rio Tinto fell 13.8 percent. It warned of slowing Chinese demand for commodities because of the world financial crisis and signalled a possible delay in plans to sell $10 billion in assets.
Steel producers were put under pressure after the world's fourth-biggest steelmaker, South Korea's POSCO, warned on Tuesday about fourth-quarter results as the global financial crisis would slow steel demand growth.
ArcelorMittal was down 8.64 percent, German midcap Salzgitter lost 8.58 percent, while ThyssenKrupp was down 7 percent.
Among notable outperformers this session, Deutsche Telekom added 3.2 percent and France Telekom was 2 percent higher. Traders said telecoms' defensive characteristics were in demand in the slumping market.
German tyre and auto part specialist Continental saw a 2.2 percent gain after major investor Schaeffler said it has purchased 834,000 shares in the German tyre and auto parts specialist as part of its takeover easing worries the deal could run into financing difficulties.
Infineon was up 1.4 percent as the German chipmaker benefitted from strong quarterly profits from technology bellwether Intel Corp and enjoyed a rebound from Tuesday's sharp fall.
Britain's FTSE was down 3.5 percent, Germany's DAX fell 2.6 percent and France's CAC slipped 2.7 percent.
The FTSEurofirst 300 index plummeted 22 percent last week — its worst weekly performance ever, and is down nearly 37 percent so far this year.
