EUROPE MARKETS: European Stocks, Euro Fall After Fresh Round Of Dreary Data

By Carla Mozee, MarketWatch

LONDON (MarketWatch)--European equities fell and the euro languished at two-year lows against the dollar on Wednesday, as economic data highlighted the growth challenges that the European Central Bank likely will address at its meeting Thursday.

German's manufacturing sector stagnated in September, with data firm Markit's manufacturing purchasing managers index falling to 49.9, the first reading below the 50 level since June 2013. A reading below 50 indicates contraction.

Meanwhile, the eurozone manufacturing PMI slipped to 50.3 compared with a previous estimate of 50.5, Markit said. The French manufacturing sector contracted last month, but one positive takeaway from that report was the contraction was at its slowest pace in four months.

Overall, the near-term outlook looks worrying for the eurozone manufacturing sector as order books are deteriorating for the first time since June of last year, "suggesting output could start to fall as we move into the final quarter of the year," said Markit Chief Economist Chris Williamson in Wednesday's report.

Markets: The Stoxx Europe 600 fell 0.8% to 340.22. It declined to intraday lows as trading on Wall Street opened, with U.S. stocks dropping after a stronger-than-expected report on private-sector hiring further stoked concerns that the Federal Reserve will raise interest rates sooner than later.

For much of the European session, investors appeared to stay on the sidelines before the European Central Bank makes its own policy announcement on Thursday.

The Financial Times late Tuesday reported ECB President Mario Draghi will push for Greek and Cypriot bank loans that carry so-called junk ratings to be included in the ECB's program of buying covered bonds and asset-backed securities. "That this proposal is meeting strong resistance within Germany should be no surprise," said Adam Cole, head of G-10 currency strategy at RBC, in a note.

The euro (EURUSD) hit an intraday low at $1.2584 against the dollar after the manufacturing report. The euro later fetched $1.2605, compared with $1.2631 late Tuesday in New York.

The U.K. FTSE 100 fell 1% as shares of supermarkets Sainsbury and Tesco were hammered.

The U.K. also received downbeat data from Markit, as Britain's manufacturing sector in September expanded at the slowest pace in 17 months. The pound (GBPUSD) fell below $1.62 during the session but bounced back to around late Tuesday's level around $1.6212.

"The strong upsurge in U.K. manufacturing sector at the start of the year appears to have run its course," said Rob Dobson, Markit senior economist, in a note. "September's disappointing reading will therefore add to the air of caution as to whether the [U.K.] economy is ready for higher interest rates," he said.

Germany's DAX 30 index turned lower by 1% to 9,382.03. Shares of Adidas AG , however, were higher after the German sports wear retailer said it would pay as much as 1.5 billion euros ($1.9 billion) back to shareholders by the end of 2017

In France, the CAC 40 lost 1.2% to 4,365.27.

Also Wednesday, the International Monetary Fund halved its 2015 forecast for Russian economic growth, to 0.5% from 1%. Geopolitical tensions "including sanctions, counter-sanctions, and fear of their further escalation--are amplifying uncertainty, depressing confidence and investment," it said. The greenback traded at 39.6606 rubles late Wednesday. The ruble hit fresh lows Tuesday after a Bloomberg report that Russia's central bank was considering measures to curb the outflow of money from the country. The central bank later said it wasn't considering such a move.

Meanwhile, shoe and clothing retailer Zalando SE made its trading debut on the Frankfurt stock exchange. The shares opened at EUR24.10 ($30.40), above the EUR21.50 issue price. They finished at EUR21.57, according to FactSet data.

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