Europe pummelled by U.S. data

LONDON, England (CNN) -- European markets suffered heavy losses on Tuesday as Wall Street returned with a Labor Day holiday hangover after U.S. economic data pointed to a faltering recovery.

Even before the U.S. data, European stocks were battered by growing concern over the global economy and a sell-off in Japan, where the main market index plunged to 19-year lows.

London's FTSE 100 lost 3.6 percent, or 152.3 points, to 4,028.6 and the CAC 40 blue chip index in Paris dropped 4.5 percent, or 146.16 points, to 3,126.60, while Frankfurt's electronically traded Xetra Dax was down 4.6 percent, or 164.72 points, to 3,444.69 in late trading (the German market was set to close at 1800 GMT).

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, was down 4 percent to 901.04 -- nearing a one-month low -- with all major sub-sectors declining.

In Japan, economic data on Friday showed the economy grew at a faster-than-expected 0.5 percent in the April-June quarter, but industrial production fell unexpectedly for the second straight month in July and other data showed deflation worsening.

QUICKVOTE Twenty-one of the last 30 Septembers have yielded stock market losses on the month. Can this month buck the trend? Yes No View Results

Asian markets plunged on Tuesday, with the benchmark Nikkei diving 3.2 percent to 9,217.04 -- its lowest close since November 7, 1983. (Full story)

The sell-off intensified in Europe after a report showing manufacturing activity in the U.S. grew but at a sluggish pace in August -- the seventh straight month of expansion following a long slump in the industry. (Full story)

"There seems to be a rekindling of worries about the global economic upturn," David Thwaites, a European strategist at BNP Paribas, told Reuters.

"September is not traditionally a good month for markets given we are entering the confessional period [when troubled companies reveal they are going to miss consensus forecasts] and we are also approaching the anniversary of the attacks on the United States." (Full story)

Also contributing to the overall losses in Europe was a reshuffle of the Dow Jones Euro Stoxx 50, causing fund managers who track the index to alter their portfolios.

Among the stocks dropped from the index were French telecom equipment maker Alcatel (PCGE), which fell 8.1 percent to 4.67 euros, media giant Vivendi Universal (PEX), which lost 6.6 percent to 11.86 euros and retailer Pinault-Printemps-Redoute, which slipped 4.1 percent to 78.30 euros.

Also off the list, Ericsson, the world's biggest maker of wireless infrastructure, which was down 6.7 percent to 6.30 Swedish crowns.

Traders say there are concerns that Ericsson, which has just completed a $3.2 billion sale of new shares, may have to issue even more shares in the near future to help shore up its finances.

Another stock index dropout Zurich Financial Services fell 3 percent to 128 Swiss francs.

The Swiss insurer extended the previous sessions losses on more reports the group is poised to announce a rights issue when it reports on Thursday. The rights issue, or raising of additional funds, could be used to prop up the company's ailing balance sheet as stock markets continue to tumble after a brief pause.

However, Axa (PCS), Europe's second biggest insurer, rose 2.5 percent to 12.90 euros after the French group confirmed its provisional results and said it is on track to make savings, but the company could offer only a "prudent'' outlook. (Full story)

France's SAP (FSAP), Europe's biggest software house, sank 5.5 percent to 70.66 euros on news its founding group of shareholders had ended their pooling agreement under which they had exercised joint control of a third of the company's stock. (Full story)

German chip marker Infineon [FTE:FIFX] was down 7.3 percent to 10.37 euros in late Frankfurt trading.

Telecom stocks came under more pressure, with reports that French government was seeking a replacement for France Telecom (PFTE) CEO Michel Bon. France Telecom slid 4.6 percent to 10.90 euros in Paris. (Full story)

Deutsche Telekom (FDTE), Europe's biggest telecom company, was down 5.5 percent to 10.30 euros in late trading. There have been rumours that either the German government, which has a 43 percent stake in the group, or a large institution was attempting to sell some of its shares.

Europe's biggest mobile phone company Vodafone (VOD) dropped 6.5 percent to 93.53 pence.

Outside the telecom and tech sector, Swiss drug group Roche Holding was down 1 percent to 102.50 francs. On Tuesday, Roche said it was selling its vitamins and fine chemicals business to Dutch group DSM for 2.25 billion euros as Roche focuses on its core healthcare business. (Full story)

Bucking the downward trend was the UK's AstraZeneca (AZN), Europe's second-biggest drugmaker. It closed up 0.4 percent to 1,895 pence after Banc of America upgraded its stock to a "buy." On Monday, the group said clinical trials showed its experimental cholesterol-lowering drug Crestor was more effective than Pfizer's treatment Lipitor. (Full story)

The AEX index in Amsterdam was down 3.9 percent and Milan's MIB30 index also lost 3.8 percent, while the SMI in Zurich declined 3.6 percent.

In the U.S. on Tuesday, a weaker-than-expected report on manufacturing activity darkened gloom for U.S. stocks as investors also struggled with an estimate cut for software leader Intel and a rating cut of Citigroup.

Meanwhile, the dollar slipped to its weakest level against the euro in over a month.

At 1025 EST, the Dow Jones industrials average was down 246.70 to 8,416.80, while the Nasdaq composite lost 36.65 to 1,278.20. The Standard & Poor's 500 index dropped 27.79 to 888.28. (Full story)