European shares ended lower on Thursday, pulled down by weaker banks and tech stocks on concerns of further writedowns at HBOS and market talk of lowered guidance at chip equipment maker ASML.
A weaker-than-expected reading of the Philadelphia Fed survey further weighed on stocks, as did a comment from Citigroup Chief Financial Officer Gary Crittenden at an investor conference that the bank could have substantial writedowns in the second quarter.
"It's pretty grim. For a reasonable part of the United States, the economic signals are not encouraging," said Stephen Pope, chief global market strategist at Cantor Fitzgerald Europe.
Pope said sectors with pricing power such as miners, chemicals and some food producers offered better value for money in this difficult market environment.
The FTSEurofirst 300 index of top European shares ended down 0.5 percent at 1,244.77 points.
Banks were the largest decliners by weight with HBOS shedding 7 percent after warning of a 1 billion pound ($2 billion) writedown in its first half, falling house prices and rising arrears.
"There are some reassurances but enough uncertainty to limit the likelihood of any material rebound in the share price over coming weeks," Barclays Wealth said in a note on HBOS's trading statement.
Other financials also came under pressure with Alliance & Leicester down 5.3 percent and UBS down 3.7 percent.
Santander lost 0.9 percent after three sources familiar with the situation told Reuters that Spain's biggest lender was considering a takeover bid for the Dresdner bank unit of insurer Allianz.
Dresdner and Santander declined to comment.
Technology stocks fell sharply with the DJ Stoxx European technology index 2.2 percent lower amid market talk of a profit warning at semiconductor equipment maker ASML, which dropped 6.4 percent.
Traders pointed to speculation the company was lowering its forecasts for gross profit margins to between 36 and 38 percent from 40 percent.
The company declined to comment.
Oil heavyweights Royal Dutch Shell and BP lost over 1 percent as crude declined more than $2 a barrel after China said it would raise gasoline and diesel prices.
M&A Talk Lifts Steel, Utilities
Steel stocks were buoyed by renewed consolidation hopes after South Korean rival POSCO said it may invest in Macarthur Coal, in which ArcelorMittal has also declared an interest.
ArcelorMittal rallied more than 4 percent with traders noting that although the potential for a bidding war exists, the probability is higher that ArcelorMittal will be able to take over Macarthur, since it already owns a stake in it.
This would offer attractive synergies to the steel maker in terms of vertical integration, analysts said.
Steel tube maker Vallourec shot 6.2 percent higher after Morgan Stanley reiterated its "outperform" rating and raised the price target on the stock by 32 percent, pointing to the group's ability to pass on higher raw material prices.
M&A chatter also lifted utilities with Spain's Gas Natural up 1.5 percent after a Financial Times report that GDF Suez, the French energy group to be created next month, would join a bid for Gas Natural if asked by savings bank La Caixa, which controls 35.5 percent of Gas Natural.
Repsol, one of Gas Natural's biggest shareholders, said it would not allow Gas to be sold to a rival.