European stocks take steep plunge

European stock markets posted their biggest one-day decline in two years on Friday, stung by inflation worries and lower quarterly profits from the three top steelmakers.

Natural resource, insurance and telecom stocks were among the leading decliners.

London's FTSE 100 Index closed below the key 6,000-point level for the first time since the end of March. The index ended down 130 points at 5,912. The German DAX Xetra 30 Index fell 2.3 percent to 5,916 points and the French CAC-40 Index dropped 2.1 percent to 5,150.

The broad decline reflected a downturn Thursday on Wall Street, where US stocks logged their biggest one-day drop since January.

"It's really a bit of a follow through from the way New York markets were trading, and the majority of the Asian markets were down heavily too," said Stephen Pope, head of equity research at Cantor Fitzgerald Europe.

"If you look at the magnitude of the declines -- we're certainly trying to match that," he said.

However, Pope said the pullback doesn't signals the end of the rally in equities. "There's good value out there," he said. "Where else are people going to invest their money?"

Automakers were hit hard, with DaimlerChrysler and Peugeot among those weighed down by the usual factors of dollar weakness and oil prices.

Mittal Steel closed down 4.2 percent. The steelmaker said first-quarter net income dropped 35 percent, while sales rose 31 percent.

Arcelor, which has been fighting off a Mittal takeover bid, fell 2.3 percent. Arcelor said first-quarter profit fell 20 percent, hurt by declining steel prices.

Arcelor also said it's willing to buy back US$9.5 billion of shares, even as Mittal Steel announced its bid for Arcelor has won US antitrust approval. The Justice Department and Mittal have agreed that if it's successful in its bid for Arcelor, a sale of Canada's Dofasco to ThyssenKrupp would meet competition concerns.

ThyssenKrupp gained 2 percent. It said second-quarter net income dropped 59 percent, with the year-earlier figures including a special gain from the sale of a business. The company raised its fiscal 2006 sales and earnings outlook.

German insurance group Hannover Re saw its shares drop 4.5 percent after posting a 7.6 percent rise in first-quarter net income that was below analyst expectations.

Allianz, after having already announced that its profit rose 34 percent, said on Friday said the increase was driven by a doubling of operating profit at its Dresdner Bank unit. Allianz shares closed down 2.8 percent.

Telefonica shares fell 4 percent. Europe's third-largest telecommunications company said quarterly profit jumped 40 percent, helped by the contribution of recent acquisitions O2 and Cesky Telecom.

InBev, the world's largest brewer by volume, said its quarterly profit nearly tripled as it served up 5.87 billion pints of beer in Latin America, with volumes in Brazil especially strong. InBev's shares eased 3.6 percent.