Europe hit by gloomy data

LONDON, England (CNN) -- European markets closed down -- but off their lows -- on Thursday as weak U.S. economic data sent new jitters through Wall Street and added to the negative response to earlier signs of a faltering recovery in Germany .

London's FTSE 100 slipped 0.4 percent to 4,011 and the CAC 40 blue chip index in Paris lost 0.9 percent to 3,139.39, while Frankfurt's electronically traded Xetra Dax was down 0.7 percent to 3,401.95 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 0.5 percent, with the computer and leisure sub-sectors among the top decliners.

The markets initially fell by between 2 and 3 percent after the German government reported that unemployment in Europe's biggest economy rose in August, although by less than expected, and that manufacturing orders and retail sales fell in July. (Full story),

"These are not nice numbers. We don't expect a recession in Germany, but we are already moving towards stagnation," Andreas Scheuerle of DekaBank told Reuters.

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The slide in stocks intensified after the Institute for Supply Management (ISM) index showed that the U.S. service sector weakened in August, indicating the impact of a sluggish recovery has widened to include non-manufacturing sectors. (Full story)

"It's all pointing in the same direction -- the ISM was a surprising number and a scary number," said John Shepherd, an economist at Dresdner Kleinwort Benson.

Among the biggest losers was France Telecom (PFTE), Europe's second-largest phone company. It fell 11.4 percent to 10.18 euros after a press report said it would make a record loss of 10-15 billion euros. (Full story) Its mobile phone unit Orange (PORA) lost 3.8 percent to 4.79 euros in Paris.

Alcatel (PCGE), the world's fifth largest telecoms equipment maker, dropped 4.4 percent to 4.40 euros in Paris, while Siemens (FSIE), the German electronics and engineering giant, was down 3.3 percent to 68.85 euros in late Frankfurt trading.

Germany's SAP (FSAP), Europe's biggest software company, was down 3.1 percent to 69 euros in late trading despite saying it would hit its full-year sales target.

Cap Gemini (PCAP), Europe's biggest computer services company, fell 6.2 percent to 27.03 euros in Paris.

France's STMicroelectronics (PSTM), Europe's biggest chip maker, lost 4.5 percent to 18.34 euros, while Germany's Infineon (FIFX), the second largest, was down 4.6 percent to 9.55 euros in late Frankfurt trading and ASML, the Dutch semiconductor equipment maker, fell 5.3 percent to 8.69 euros.

Among the few positive stocks on Thursday was Zurich Financial Services. Europe's third-largest insurer rose 6.5 percent to 127.75 Swiss francs after saying it would axe 4,500 jobs to restore profitability. The company posted its biggest loss ever on Thursday but said it would institute measures to raise $5 billion to bolster its balance sheet. (Full story)

Also advancing was L'Oreal (POR), the world's biggest cosmetic group. It rose 5.8 percent to 74.65 euros after saying late on Wednesday that first-half profit rose almost 30 percent and 2002 was shaping up to be another good year. (Full story)

The AEX index in Amsterdam fell 1.4 percent and Milan's MIB30 index lost 0.9 percent, while the SMI in Zurich was mainly 1.3 percent.

In the U.S. on Thursday, a disappointing reading on the service sector helped knock stocks lower, pushing economic concerns to the forefront even as investors also struggled with poor sales results from retail leader Wal-Mart Stores. (Full story)

At 1030 EST, the Dow Jones industrial average was down 205.42 points to 8,219.70 and the Nasdaq composite fell 38.34 points to 1,253.97. The Standard & Poor's 500 index gave back 22.27 points to 871.13.