(Jan 25): European shares closed at two-week lows on Monday, as a slump in German business morale underscored the damage from tighter Covid-19 restrictions, while investors feared a slow vaccine rollout could further delay an economic recovery.
The pan-European STOXX 600 index reversed early gains and finished 0.8% lower. The German DAX fell 1.7%, France CAC 40 was down 1.6% and the UK's FTSE 100 declined 0.8%.
The Ifo economic institute's business climate index fell to 90.1 in January from an upwardly revised reading of 92.2 in December, while a Reuters poll had forecast a reading of 91.8.
The German economy, Europe's largest, will likely reach its pre-pandemic levels in mid-2022, according to a draft document prepared by the economy ministry, seen by Reuters.
"German Q1 GDP now looks likely to fall by at least 1% qoq, assuming that the restrictions for retail and services will only be gradually lifted after Feb. 14," Deutsche Bank's chief economist, Stefan Schneider, wrote in a note.
"Hence, our 4-1/2% forecast for the year as a whole looks somewhat ambitious, but given the overall uncertainty we currently see no real need to lower it."
Economy-linked banking, auto, oil & gas and travel & leisure stocks took the biggest hit, falling between 1.9% and 3%.
Markets took a turn for the worse after US drugmaker Merck said it would end development of its two Covid-19 vaccines.
Pfizer announcing delays of nearly a month to its Covid-19 vaccine shipments to the European Union earlier this month, while AstraZeneca has announced a large cut in supplies to the bloc.
British Prime Minister Boris Johnson said he was looking at toughening border quarantine rules, because of the risk of "vaccine-busting" coronavirus variants.
British Airways-owner IAG, Ryanair, Lufthansa and Air France KLM fell between 3.3% and 7.7%, while retailers fell 1.5%.
Several Spanish regions ramped up anti-coronavirus measures, while France was looking at a third national lockdown.
Technology stocks gave back early gains, but losses were modest as their US peers traded at all-time highs.
Finnish telecom equipment maker Nokia jumped 12.9%, while technology investor Prosus gained 3.6% to hit an all-time high.
Investors sought refuge in defensive sectors such as telecoms and healthcare, which gained 0.9% and 0.7% respectively.
French state-controlled power group EDF slumped 15.6% to the bottom of STOXX 600, after broadcaster BFM Business reported that the European Commission wanted a further six months of talks on a planned restructuring.
A source in the French finance ministry denied the report.