European stocks drop as US recession worries spark global sell-off

The pan-European Stoxx 600 index was down 2.2% to its lowest since February 14. 

European shares fell to near six-month lows amid a global sell-off in equities on fears of a slowdown in US economic growth, with only a handful of stocks trading in the green.

The pan-European Stoxx 600 index was down 2.2% to its lowest since February 14 during early trading.

Fears the US could be heading towards a recession have sent investors dashing away from risk assets. Japan's stock market index Nikkei closed 13% lower.

Germany's Dax, France's Cac 40, Britain's Ftse, as well as Spain's Ibex 35 all fell more than 2%.

"You don't get the Nikkei falling by its largest amount in nearly 40 years without some kind of repercussions across European markets," Chris Beauchamp, chief market analyst at IG Group said.

"These things don't usually stop on a dime, it takes a few days to sort out... but the initial panic appears to be over."

Energy stocks took the most hit, falling 3.4% after oil prices dropped 1% as US recession fears offset supply worries in the Middle East. Financial shares were also hit.

Investors will get a read on US employment in the service sector from the ISM non-manufacturing survey later in the day.

Last week, a worryingly weak July payrolls report sparked investor worries on the health of the US economy, spurring a risk-off sentiment globally.

In terms of interest rates, markets see a 78% chance of a 0.5% cut by the Federal Reserve on September 18, while traders expect a second cut by the European Central bank on September 12.

On the data front, growth in eurozone business activity stalled last month — Purchasing Managers' Index for the currency union fell to 50.2 in July from 50.9 in June.

Growth in Germany’s services sector slowed for the second consecutive month in July.

Reuters