EUROPE MARKETS: German Stocks Slump In Weak Europe Market

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- German stocks slumped in a weak European market on Wednesday, as the country's benchmark index dropped close to key technical levels, after speculation of a sovereign downgrade.

The broader market was on track for a fourth straight day of losses, with heavyweight Tesco PLC posting steep losses after a lackluster earnings report.

The Stoxx Europe 600 index fell 1.2% to 284.85, after closing at a one-week low on Tuesday.

The index spent the past three sessions mired in the red, as worries over a slowdown in global growth resurfaced after disappointing data from China and the U.S.

"The rot may have been stemmed in the short term by positive [quantitative-easing] comments from some senior Fed officials but there is a real sense that investors are starting to grow weary as underlying economic data continues to disappoint," said Mike McCudden, head of derivatives at Interactive Investor, in a note.

"Without much by way of fresh data to direct investors today markets may drift as they look with caution towards another Spanish bond auction tomorrow and weekly jobs data from the U.S.," he added.

German stocks were among hardest hit in Europe, as speculation that the country is facing a sovereign downgrade added to fears in an already sensitive market.

The DAX 30 index lost 1.9% to 7,538.29, with shares of BASF SE down 2.8%, after Nomura cut the chemicals firm to neutral from buy.

"The price of the high euro and the lack of global growth seems the be hitting where it should: Europe's biggest export economy, so in short this is like gold--a move towards reality," Steen Jakobsen, chief economist at Saxo Bank in Copenhagen, said in a note.

The earnings calender in Europe featured some U.K. heavyweights, with supermarket retailer Tesco (TESO) reporting its first drop in earnings in 19 years, as write-downs wiped out much of the profit. Shares were down 3.2%.

Heavyweight mining firm BHP Billiton PLC (BHP) dropped 2.5%, after saying iron-ore production was 5% lower in third quarter compared to the prior quarter.

On a more upbeat earnings note, shares of Burberry Group PLC (BURBY) jumped 3.6%. The luxury retailer reported a rise in second-half comparable sales, helped by strong sales in outerwear and men's clothing.

The FTSE 100 index dropped 0.8% to 6,255.96.

On the data front in the U.K., the Office for National Statistics said unemployment in the first quarter rose to 7.9% in the three-month period to February, up 0.2 percentage points from September to November last year.

Additionally in the U.K., minutes from the Bank of England's April meeting showed the nine-member policy-setting committee voted unanimously to keep rates at a record low 0.5%, while three members, including Gov. Mervyn King, voted for an increase in asset purchases.

France's CAC 40 index gave up 1.7% to 3,621.59. Shares of European Aeronautic Defence & Space Co. jumped 3.8%, as the company said it bought back 1.56% of its own shares held by the French state. Additionally, German car maker Daimler AG said it sold its entire 7.5% stake in EADS. Daimler shares dropped 1.6%.

Outside the major indexes, shares of ASML Holding NV (ASMLD) jumped 7.3%, after the chip-equipment maker reported first-quarter sales ahead of market expectations.

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