European markets dive as EU shreds growth

London - European markets fell sharply on Tuesday after the European Union slashed its economic forecasts for the eurozone, while the energy sector sank on plunging oil prices.

The EU also warned that France and Italy remain huge problems for the sluggish European economy while calling for investment.

London's FTSE 100 index closed down 0.52% to 6 453.97 points, while the Paris CAC 40 dropped 1.52% to 4 130.19 points and Milan's FTSE Mib sank 2.24% to 18 935 points.

And Frankfurt's DAX 30 slipped 0.92% to 9 166.47 points compared with Monday's close.

The euro meanwhile rose to $1.2559 from $1.2484 late in New York on Monday.

The EU slashed its 2014 growth forecast for the 18-country eurozone to just 0.8% from the previous 1.2%, with 2015 chopped to 1.1% from 1.7%. Growth is seen as picking up to 1.7% in 2016.

READ: EU slashes eurozone growth predication

US stocks moved mostly lower on the EU's slower growth forecasts, a higher US trade deficit and slumping oil prices. Investors were also hesitant as US mid-term elections were being held on Tuesday.

Around mid-day in New York, the Dow Jones Industrial Average dropped 0.28% to 17 316.94 points, and the broad-based S&P 500 dipped 0.68% to 2 004.09 points, while the tech-rich Nasdaq Composite Index shed 0.81% to 4 601.47 points.

A big gainer on Wall Street Tuesday was Chinese online retailing giant Alibaba, whose share price soared to a new record high of $104 after posting a 15% increase in profits in its first quarterly report since completing the world's biggest stock offering.

Aside from the gloomy growth downgrades, European markets also took a heavy knock from tumbling global oil prices.

Brent hit a four-year low after Saudi Arabia slashed its export prices for the US market to counter demand for shale fuels.

Brent North Sea crude for delivery in December hit a low of $82.08 before recovering slightly to stand at $82.41 per barrel in late London deals.

US benchmark West Texas Intermediate hit a three-year trough at $75.84 and later stood at $76.22 a barrel compared with Monday's closing level.

In reaction, shares in French oil and gas giant Total sank 3.75% to close at €44.995 in Paris trading.

In London, Anglo-Dutch energy major Royal Dutch Shell saw its "A" share slide 2.60% to close at 2 139 pence, while British rival BP closed down 3.00% to 430.40 pence.

"The collapse in oil prices over the past few months will not transform the outlook for the world economy, but it should act an 'automatic stabiliser', providing some reassurance to those fearing the worst," said Andrew Kenningham, senior global economist at Capital Economics.

Kenningham also said that central bankers in countries at risk of deflation were likely to respond to the slumping oil prices, noting the Bank of Japan's recent decision to accelerate asset purchses, "and we expect the ECB to follow suit in coming months".

The threat of deflation and recession combined with stubbornly high unemployment loomed large in the European Commission's autumn economic forecasts.

"The European Commission have delivered a bleak assessment of the economic outlook for the eurozone," said VTB economist Neil MacKinnon.

"Stagnation and deflation remain the key challenges for policymakers."

France's economy is meanwhile predicted to grow by a lacklustre 0.3% this year, against an earlier forecast of 1.0%, and expand by 0.7% in 2015.

But in a dire forecast, Brussels said the public deficit in France would surge to 4.5% of total GDP in 2015 and keep widening to 4.7% in 2016, making it the biggest in the eurozone.

These figures are way off the EU's limit on public deficits of 3.0% of output.

Debt-laden Italy was expected to stay in recession for a third consecutive year with a contraction of 0.4%, followed by 0.6% growth next year.

Even Europe's economic powerhouse Germany emerges as a worry, with its economy set to expand by a sluggish 1.3% in 2014 and just 1.1% next year.

In foreign exchange deals, the euro rose to 78.48 British pence from 78.15 pence. The British pound firmed to $1.6003 from $1.5974 on Monday.

On the London Bullion Market, gold prices finished at $1 166.50 an ounce, from $1 167.75 an ounce on Monday.