A survey of the eurozone's manufacturing and services sectors, the so-called composite purchase managers' index published by Markit, fell in April - to 47.4 points, compared with analysts' forecasts for a slight uptick to 49.3 from last month's 49.1. The reading "supports the idea that eurozone economic activity is likely to experience recessionary conditions throughout the course of this year," Mark Miller, European economist at Capital Economics in London, wrote in a research note. The Stoxx 50 index of 50 blue chips declined 1.7 percent to 2383 by midmorning European time. Germany's DAX 30 dropped 2.4 percent to 6,567, France's CAC 40 fell 1.9 percent to 3,129 and the London FTSE shed 1.6 percent to 5,677. The euro fell 0.3 percent against the dollar to $1.315.
Adding to the losses were political turmoil in the Netherlands and election results in France that highlighted the difficulty of using spending cuts to combat a crisis over too much debt in some countries. The government of Netherlands' Prime Minister Mark Rutte appeared headed for new elections after failing to get support from a right-wing party for budget cuts to bring the deficit under the EU limit of 3 percent of gross domestic product. And France saw Socialist Francois Hollande, a critic of austerity as a way out of the debt crisis, lead the first round of president elections over incumbent Nicolas Sarkozy. Hollande wants to renegotiate a European treaty intended to limit excessive government spending in order to emphasize growth over austerity. If Hollande wins the final election round on May 6, economists fear those steps would upset France's delicate cooperation with Germany that has led Europe's efforts to resolve its financial crisis.
"If Hollande is really ahead of Sarkozy in two weeks, Europe will have to prepare for a new power balance as it will be the end of the common road for France and Germany, and that certainly has negative repercussions for the markets, the euro and the euro's stability," said Stefan Scharfetter of Germany's Baader Bank. The European Union, lead by Germany, has pushed for governments to cut their deficits, and eurozone members have signed - but not yet ratified - a treaty tightening rules on running up too much debt. Countries that have needed bailouts - Greece, Ireland and Portugal - are on enforced diets of cutbacks. Spain and Italy, however, have recently had to let deficit-reduction targets slip. Italy's Prime Minister Mario Monti and Christine Lagarde, the head of the International Monetary Fund, are among leaders who have warned that cutting back too fast could hurt growth and actually make it harder to pay debts.
Meanwhile, European Central Bank head Mario Draghi said the bank had not discussed further measures to support the eurozone economy, as suggested by the IMF. The bank has stressed it is now up to governments to act after it unleashed over ?1 trillion in cheap, three-year loans to banks to support the financial system. Wall Street also appeared headed for a lower opening, with Dow Jones industrial futures down 0.9 percent to 12,865 and S&P 500 futures 1 percent lower at 1,361. Asian stocks also posted palpable losses, especially in China. Hong Kong's Hang Seng fell 1.8 percent to 20,624.39. The benchmark Shanghai Composite Index lost 0.8 percent to 2,388.59 and the Shenzhen Composite Index lost 1.8 percent to 944.87.
A report on Chinese manufacturing suggested that a slowdown in growth may have bottomed out in the first quarter. HSBC's China purchasing managers index for the manufacturing sector rose to 49.1 in April from 48.3 in March. Still, any reading below 50 indicates a drop in production. Japan's Nikkei 225 index closed down 0.2 percent at 9,542.17. South Korea's Kospi slipped 0.1 percent to 1,972.63 and Australia's S&P/ASX 200 dropped 0.3 percent to 4,352.40. Benchmarks in Singapore, Indonesia, Thailand and Taiwan were also lower. In energy trading, benchmark oil for June delivery was down 82 cents at $103.06 a barrel in electronic trading on the New York Mercantile Exchange.