European stocks fell, sending the Dow Jones Stoxx 50 Index to its biggest drop in two months.
Bayer AG and other chemical stocks slid on concern rising oil prices will increase costs. Companies such as AstraZeneca Plc that rely on US sales declined with the dollar.
The Stoxx 50 lost 3.7 percent to 2,381.56 and is at its lowest since Oct. 10. The index has fallen 11 percent this month and is headed toward its first losing month in three. The Dow Jones Stoxx 600 Index shed 3.1 percent to 199.83, with all of its 18 industry groups falling.
"A lot of industries are dependent on oil, especially chemicals" said Claude Hofer, a fund manager at Bank Ehinger & Cie AG, a private bank owned by UBS AG, Switzerland's largest lender. "We are very cautious at the moment," he said, citing the weaker dollar and the rising oil price.
KarstadtQuelle AG led a decline by retailers amid concern that holiday sales growth slowed. Nokia Oyj slid after the Wall Street Journal reported Motorola Inc. is gaining market share from it in North America.
The number of shares traded was less than a third of the six-month daily average for companies in the UK's FTSE 100 Index, France's CAC 40 Index and Germany's DAX Index.
All of the 17 western European benchmark indexes fell. The DAX slid 5.4 percent, the FTSE 100 fell 2.9 percent and CAC 40 shed 2.3 percent.
The Stoxx 50 Index has lost 36 percent in 2002 and the Stoxx 600 Index has fallen 33 percent. Both are headed toward a third year of declines.
Bayer, Europe's third-largest chemicals maker, lost 7.3 percent to 19.55 euros. Rhodia, France's biggest producer of specialty chemicals, sank 4.6 percent to 7.50 euros. Chemical makers use oil as a fuel and a raw material.
"Oil is still a key input product for chemical companies," said John Hatherly, who helps manage ?111 billion (US$178 billion) as head of analysis at M&G Investment Management in London. Higher oil prices may hurt profit at makers of products such as plastics "because their ability to pass on price increases may be limited."
Higher oil prices would hurt margins, or profit as a percentage of sales, at companies including Rhodia, Bayer, Clariant AG and Degussa AG, according to Credit Suisse First Boston. Brent crude oil for February settlement rose as much as 1.8 percent to US$30.13 a barrel on the International Petroleum Exchange in London at 4:41pm.
AstraZeneca, a UK drugmaker that earned about 40 percent of its revenue in the US last year, slid 4.6 percent to 2,194 pence. DaimlerChrysler AG, which gets more than half its revenue in the US, lost 4.9 percent to 28.42 euros.
They fell as the dollar declined to US$1.0412 per euro, its lowest value since Jan. 6, 2000 from US$1.3075 yesterday. A lower dollar reduces the value of sales denominated in that currency once translated into euros.
Pinault-Printemps-Redoute SA, the retailer that owns the US Brylane mail-order business and controls luxury-goods maker Gucci Group NV, fell 4.1 percent to 68 euros.
Michelin & Cie., Europe's largest tiremaker, dropped 4.1 percent to 31.16 euros. The French company last year earned two-fifths of sales in North America.
Michelin also fell after Japan's Nihon Keizai newspaper reported that 2003 pretax profit at Bridgestone Corp, the world's second-largest tiremaker, will drop 11 percent as exports to North America and Asia slow.
Retailers dropped amid concern consumer spending over the Christmas period waned. The Stoxx 600's retail group shed 2.8 percent.
German retailers are lowering prices by as much as 92 percent after shoppers held back in the past months and holiday sales fell short of expectations, Bild-Zeitung said.
KarstadtQuelle, Germany's largest operator of department stores, shed 1.3 percent to 16.28 euros. Metro AG, Germany's biggest retailer, slid 6.1 percent to 22 euros.
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