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Europe shares close lower as Ukraine and China still dominate

European stocks closed sharply lower on Thursday, continuing a volatile week that has been dominated by concerns over China's growth as well as the crisis in Ukraine.

UK supermarkets fall

The pan-European FTSEurofirst 300 Index provisionally closed lower by 1 percent as the referendum in Crimea on whether it should join Russia - a vote seen as illegal by Western powers - draws ever nearer with diplomatic efforts failing and economic sanctions becoming more likely.

European shares extended a two-week slide that began following the occupation of Crimea by Russian troops.

The U.K.'s FTSE 100 also closed down 1 percent -- lower for a fifth straight session -- following a slump in the supermarket sector. Britain's fourth-biggest grocer Wm Morrison posted its lowest profit in five years and slashed its expectations going forward. Morrison shares closed down around 12 percent, dragging other retailers with it, with J. Sainsbury trading lower by 8.4 percent and Tesco sinking 5 percent.

(Read more: UK grocer Morrisons slashes profit expectations)

U.S. stocks also turned lower on Thursday, after the S&P 500 came less than four points from its record close, as Wall Street considered data that had retail sales rising last month and weekly jobless claims unexpectedly.

The Commerce Department reported retail sales gained 0.3 percent in February after a 0.6 percent decline the prior month, with the latter figure bigger than initially estimated.

Ukraine nearing referendum; Russian war games

Meanwhile, tensions in Ukraine continued on Thursday with a referendum for the region of Crimea still due to go ahead over the weekend. Leaders from Germany and Poland have said that the EU would go ahead with economic sanctions for Russia if the country decided to miss an arranged meeting which aims to de-escalate the situation.

Russia launched new military exercises near its border with Ukraine on Thursday, showing no sign of backing down in its plans to annex Crimea.

Ukraine's acting president Oleksander Turchinov said on Thursday that Russian forces were "ready to invade" but he believed international efforts could still end Moscow's "aggression."

(Read more: Austria arrests Ukraine oligarch at US request)

German Chancellor Angela Merkel -- a leader closer to Valdimir Putin than most of her European counterparts -- warned of "catastrophe" unless Russia changes course.

"We would not only see it, also as neighbors of Russia, as a threat. And it would not only change the European Union's relationship with Russia," she said in a speech in parliament. "No, this would also cause massive damage to Russia, economically and politically."

Russia's MICEX index closed down by 2 percent on Thursday, continuing its slide south this week, having closed lower by 2.6 percent in the previous session.

(Read more: Don't change Ukraine's borders: Swedish minister)

Symbol
Name
Price
 
Change
%Change
Volume
FTSE
---
DAX
---
CAC 40
---
IBEX 35
---

China watched

Investors continued to watch events in China with lingering concerns after recent economic reports suggested slowing growth for the world's second largest economy. Global stocks have fallen this week as copper slid to a near four-year low, while the nation's first bond default in at least 17 years last week had investors questioning the viability of deals using the industrial metal as collateral.

Chinese Premier Li Keqiang took to the stage on Thursday at a press conference at the close of the National People's Congress (NPC). He said that the Chinese government is paying "high" attention to risks in the financial sector, adding that while he doesn't want to see defaults of financial products, some cases may be unavoidable.

(Read more: Chinese Premier: Financial product defaults unavoidable)

Shanghai shares trimmed gains after the release of below-view February retail sales and industrial output figures on Thursday morning. The European basic resources sector - with its heavy exposure to China - started out the session as standout gainer, propping up pan-European benchmarks. However, stocks soon fell lower with investors digesting the fresh data and closed down 0.8 percent.

Spain retail sales climb

On the data front, inflation data for France showed EU-harmonized consumer prices rose 0.6 percent in February compared to the month before. The yearly number showed an increase by 1.1 percent, with both figures beating analyst estimates. An inflation reading for Italy showed a fall of 0.1 percent (month-on-month) in February.

Retail sales for Spain managed to beat market expectations, ticking higher by 0.5 percent on the year, compared to predictions for a fall of 0.8 percent. In the Netherlands, retail sales climbed 0.8 percent (year-on-year) in the month of January.

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