European shares sink on growth data

European stocks tumbled on Tuesday after news of a sharp economic slowdown in Germany and Spain, and ahead of crisis talks between French President Nicolas Sarkozy and German Chancellor Angela Merkel.

Frankfurt's DAX 30 index of leading shares slumped 2.71 percent to 5,859.07 points and the Paris CAC 40 dropped 2.24 percent to 3,166.60 points, while London's FTSE 100 slid 1.46 percent to 5,272.97 points.

Elsewhere, Madrid declined by 1.82 percent and Milan shed 2.48 percent in morning trade. And the European single currency slipped to $1.4372 compared with $1.4440 late in New York on Monday.

Shares dived after Germany announced slower-than-expected 0.1-percent economic growth in the second quarter, while Spain added that its economy slowed to 0.2 percent growth, stoking fears of a Europe-wide dramatic slowdown.

"European equities are trading lower this morning following a disappointing German GDP number, which showed that Europe's largest economy grew at a slower pace than expected in the second quarter," said analysts at Dolmen Stockbrokers in Dublin.

"The poor German number has however put pay to any optimistic sentiment this morning with traders now concerned that the consolidated EU GDP number will show very slow growth in Europe, with an outside risk of a negative reading."

World stock markets had edged higher on Monday, steadying after recent losses that were rooted in fears that the US and eurozone debt crises could push the global economy back into recession.

"The key event for today after yesterday's rise in equity markets is today's meeting of German Chancellor Angela Merkel and French president Nicolas Sarkozy this afternoon," added CMC Markets analyst Michael Hewson.

"It would seem that on the evidence of yesterday's return of risk appetite some market participants seem to have got it into their heads that we could see some progress at this meeting.

"In light of recent experience this seems highly unlikely, given that one of the solutions that could assuage investor concerns has been ruled out by both Germany and France respectively."

Investors have been watching anxiously to see whether Sarkozy and Merkel would agree a plan to boost confidence in Europe.

On the eve of the talks, on Monday, both sides talked down the chances of a breakthrough. Berlin and Paris flatly ruled out talk of issuing joint eurozone bonds, or eurobonds.

The idea of eurobonds issued and guaranteed by countries with better credit ratings has long been floated as a way of helping struggling eurozone members raise money on the markets at affordable interest rates.

"We do not expect any major developments to derive from this meeting," agreed economist Lee Hardman at The Bank of Tokyo-Mitsubishi UFJ in London.

"As highlighted yesterday, Germany's position on eurobonds remains unchanged, continuing to prefer pressing for fiscal consolidation at the current juncture."

Germany is opposed to the introduction of eurobonds as it believes it would increase its own borrowing costs and allow countries to duck badly needed reforms.

Last week's volatility prompted a record 22 billion euro ($32 billion) bond-buying intervention from the European Central Bank in a bid to calm markets

Asian stocks were mixed on Tuesday, despite impressive gains at the start of the week and Monday's positive leads from Wall Street and European markets.

Tokyo finished 0.23 percent higher and Seoul added a whopping 4.83 percent after a public holiday on Monday.

Asia's main bourses had recorded a very strong start to the week after a turbulent few days that had seen big falls.