European shares fell on Monday as China's move to set its lowest annual growth target in eight years and uncertainty surrounding Greece's bailout prompted investors to sell riskier assets, with charts suggesting equities might suffer more in the near term.
The sell-off accelerated during the session after a survey showed a sharp downturn among Italian and Spanish businesses dragged the euro zone's private sector back into decline last month.
Mining shares topped the fallers' list, with the STOXX Europe 600 basic resources index down 1.9 percent, tracking losses in key base metals on China's growth forecast.
Speaking at China's annual parliamentary session, the country's Premier, Wen Jiabao, cut his nation's growth target to 7.5 percent for 2012 to give the economy more room to slow down if needed.
Slower Chinese growth means a negative impact on the world and commodity markets. In the short-term, this is probably a negative for risky assets, Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels, said.
But on the other hand, this would clearly reduce the massive imbalances, which in the long run is clearly a positive.
At 0903 GMT, the FTSEurofirst 300 index of top European shares was down 0.9 percent at 1,077.86 points. The index, which fell 10.7 percent in 2011, is still up 7.7 percent this year after hitting a seven-month high late last month.
Charts showed the FTSEurofirst 300 index approaching an overbought state, with its 14-day relative strength index (RSI) hovering near 60. A level above 70 is considered overbought and makes an index vulnerable to sell-offs.
The index is also displaying a bearish divergence, while the fact that it has slipped below its short-term uptrend is a cause for concern. A close below 1,060, the bottom of its recent range, would be a bearish development, Bill McNamara, technical analyst at Charles Stanley, said in a note.
EPFR, a mutual fund tracking service, reported on Friday that investors pulled money from European stock and bond funds and poured it into U.S. funds in the week ended Feb. 29. European equity funds had outflows of more than $1.6 billion in the week, the largest outflows in 14 weeks.
FOCUS ON MACRO INDICATORS
Analysts said this week's focus will be on U.S. nonfarm payrolls data, which had potential to set the market's near-term direction. The rise in nonfarm payrolls for February is seen at 200,000, after a gain of 243,000 in the previous month.
Appetite for risk over the next fortnight will only be seen if nonfarms come in with a major beat, although any sell-off will be met with strong support from money that's sitting on the sidelines ready to buy the dips, Mike Jarman, chief market strategist at H2O Markets, said.
Focus will also be on Greece, which faces a deadline to complete a bond exchange with private holders, scheduled to close on March 8, before a second bailout is paid.
There is uncertainty over how much participation Greece will see for its bond swap, and a failure to agree on the swap would put the country back on the brink of a messy default.
Financial shares also fell, with the STOXX Europe 600 banking index down 1.8 percent and Commerzbank down 3.6 percent.
However, some fund managers bet on a stronger market following recent encouraging macroeconomic indicators.
Julien Bernier, portfolio manager at J. Chahine Capital, which manages about $400 million, said his latest rebalancing act provided a more offensive profile, with the fund company mainly selecting cyclical companies.
He said companies such as British design and engineering firm WS Atkins, Norwegian engineering group Kvaerner and chipmaker Micronas offered interesting investment opportunities.