European shares fell on Wednesday to their lowest close in seven weeks after low demand at a German bond auction, while weak Chinese factory data added to concerns about slowing global growth.
The Bund auction, which saw a low bid-cover ratio, raised fresh concerns about the impact on Germany of the region's debt problems, with investors worrying about the growing costs attached to the crisis.
If Germany can't place its debt then how can the other ones be able to do it? If Germany bails out the euro zone through the euro bond or some other construction, then German bonds will go down, said Robin Podevyn, a broker at Bank Degroof in Brussels.
The message (to European leaders) is: do something. Doing nothing is worse than anything else.
In another sign other countries were facing debt pressure, the yield premium of Belgian 10-year government bonds over German Bunds hit a euro-era high after a negotiator involved in forming Belgium's new government quit.
Belgian lender KBC
Adding to investor worries was a newspaper report that said Belgium wanted France to guarantee more short-term funding for stricken lender Dexia
Sovereign spreads widened in France on the news, hitting French bank stocks Societe Generale
Both countries denied the restructuring plan.
Fund managers were cautious on Europe due to the concerns about rising bond yields and debt levels of euro zone countries.
It has gone to the level where any European asset looks vulnerable, said Richard Batty, strategist at Standard Life Investments, part of the Standard Life Group, which administers 196.8 billion pounds of assets.
We are underweight on the euro zone equity markets.
The pan-European FTSEurofirst 300 <.FTEU3> index of top shares closed down 1.3 percent at 902.23 points at its day's low, marking its lowest close since October 4.
GLOBAL SLOWDOWN WORRIES
A weak batch of economic data from China and the United States also heightened worries about global growth slowing down.
China's factory sector shrank at its fastest pace in 32 months, renewing fears the world's second largest economy was slowing down, while data showed U.S. consumer spending growth slowed in October.
Miners, whose performance is correlated to global growth, featured among the worst performers, with the STOXX Europe 600 Basic Resources index <.SXPP> down 1.6 percent.
But not all strategists were concerned about a slowdown in China and one said it was part of the country's plan to avoid over heating.
(China's) policy for the last 18 months has been designed to slow the economy, so we shouldn't be surprised. The key is the extent of the slowdown and so far we have seen no sign that it's getting anywhere near developed markets growth levels, said Peter Sullivan, strategist at HSBC.
We still think China will be one of the growth engines in the global economy. (Reporting by Joanne Frearson; Editing by Helen Massy-Beresford)