European shares closed at a near six-week low yesterday after oil prices spiked to a new record and a profit warning from US auto giant General Motors hit car stocks such as DaimlerChrysler.
Data showing the US current account deficit grew to record in the fourth quarter hurt the dollar and also weighed on stocks.
US light crude futures hit a peak of $56.30 a barrel, the highest since the contract was introduced in 1983, after sharp falls in weekly US gasoline and heating oil supplies raised fears about tight global fuel supplies. Oil cartel OPEC said it would increase production by two per cent, but some analysts said that was not enough to cool prices.
By 1632 GMT, the FTSEurofirst 300 index of pan-European blue chips had unofficially closed down 1.5 per cent or 16 points at 1,078.6 points, its lowest close since early last month and biggest one-day points fall since August last year.
The narrower DJ Euro Stoxx 50 index shed 1.7 per cent to 3,031.8 points.
"General Motors has certainly put a spanner in the works - that's the main thing hammering the broader markets," said Peter Dixon, an economist at Commerzbank.
"Generally, we still remain pretty bullish. It's still the case that equities are the default asset class of choice."
Autos were among the worst performers after GM slashed its 2005 earnings outlook to reflect lower sales in North America and stiff price competition. GM shares fell 13 per cent.
German-American rival Daimler-Chrysler was worst affected, sliding 2.8 per cent, while Volkswagen and Renault each ended down more than two per cent.
The auto sector was already weak after data showed new car sales in Europe had their worst February in a decade, extending the year's weak start.
"GM's warning and the European sales data show how tough it is for automakers currently. Demand is weak and margins are being squeezed by high input costs," said one dealer.
Despite recent declines, stocks have posted decent returns so far this year and prospects still look encouraging, said Nigel Bolton, head of European equities at Scottish Widows Investment Partnership.
"We've been meeting with a lot of (company) management over the last few weeks, and there is a reasonably upbeat tone from most," Mr Bolton said.
"Pricing is an issue in a number of markets, with price pressure coming up through basic commodities... If you have a good product then you are able to pass on some of those price increases. If you have a fundamentally weak product, then you're in trouble."
Indexes extended losses after data showed the US current account deficit widened more than expected to a record $187.9 billion in the fourth quarter, denting the dollar and stocks on Wall Street.
In New York, the blue-chip Dow Jones industrial average was 0.8 per cent lower at 10,659.3 points, while the Nasdaq Composite Index fell 0.6 per cent to 2,022.5 points.
Around Europe, London's FTSE 100 closed down 1.3 per cent and Paris's CAC-40 ended down 1.4 per cent. In Zurich, the SMI shed 1.1 per cent, and Frankfurt's DAX closed 1.8 per cent weaker.
British banking stalwarts HSBC, HBOS and Lloyds fell between two and seven per cent after the deadline for buyers to be eligible for upcoming dividend payments passed.
Mining shares outperformed, however, as metal prices extended their bull run, with copper hitting a new record high and aluminium, zinc and tin prices all firm.
Global mining giants Anglo-American and Rio Tinto rose 1.1 per cent and 0.5 per cent, respectively.
"You do wonder whether the game is coming close to the end for some of those (basic resource) stocks but the momentum is still with them, even if the valuation is not as attractive as it was," Mr Bolton of Scottish Widows said.