Markets on defensive amid US unease

LONDON -- Stocks suffered one of their worst sessions in weeks on Tuesday following another batch of weak U.S. corporate earnings and uncertainty over the outcome of the race for the White House.

So far, quarterly earnings coming out of the U.S. have been mixed, particularly from the technology sector. Downbeat updates on Tuesday from chemical company DuPont and manufacturer 3M added to the prevailing uncertainty.

"We are currently in the third week of a disappointing corporate earnings season," said Craig Erlam, market analyst at Alpari.

Facebook unveils its quarterly earnings after the markets close in a statement that could be crucial for the social network's future. The company has had a dire time since its stock flotation in May, losing more than a third of its value as investors became concerned about the company's ability to raise money from advertising.

"The results have the potential to make or break Facebook as an investment," said Erlam.

Over-arching the focus on earnings is the battle for the White House, with opinion polls showing the two candidates are in a dead heat. Last night's debate between President Barack Obama and Mitt Romney appears to have done little to change that.

"The accompanying uncertainty of being able to make any early calls over a likely winner is certainly going to create an air of unease across the board," said Fawad Razaqzada, market strategist at GFT Markets.

By mid-afternoon in Europe, Germany's DAX was down 2 percent at 7,185 while the CAC-40 in France fell 2.1 percent to 3,412. The FTSE 100 index of leading British shares was down 1.3 percent at 5,806.

In the U.S., the main indexes were close to seven week lows with the Dow Jones industrial average 1.8 percent lower at 13,106 while the broader S&P 500 index was off 1.7 percent to 1,409.

In recent weeks, markets have been largely buoyant amid signs that Europe was getting a grip on its debt crisis. Hopes that Spain will soon tap a new bond-buying facility from the European Central Bank have helped calm jitters over the eurozone's fourth largest economy but so far the Spanish government has made no request.

With its economy in a deep recession _ figures from the Spanish central bank showed the country's economy shrinking by a further quarterly rate of 0.4 percent in the third quarter _ investors are getting fidgety again. The yield on the country's 10-year bonds, a gauge of investor unease, has risen for the second day running, up a further 0.10 percentage point to 5.58 percent.

The euro has also taken a pounding, falling 0.8 percent at $1.2968, its first move below $1.30 since Oct. 15.

Earlier in Asia, stock indexes fared slightly better. Japan's Nikkei 225 index eked out a marginal gain to close at 9,014.25 a day after the country's currency fell to a three-month low against the dollar.

A weak yen helps Japan's mammoth export sector by raising the value of company profits repatriated from abroad. Still, grim export data _ which Monday showed a 10 percent drop in exports for September compared with a year earlier _ kept advances in check.

South Korea's Kospi declined 0.8 percent to 1,926.81 but mainland Chinese stocks lost ground, with the Shanghai Composite Index down 0.9 percent to 2,114.45. The Shenzhen Composite Index lost 1.4 percent to 869.96.

Hong Kong markets were closed for a public holiday.

Oil prices took a hit amid the increasing market gloom _ benchmark oil for December delivery was down $2.39 to $86.21 per barrel in electronic trading on the New York Mercantile Exchange.