By Kim Hjelmgaard, MarketWatch
LONDON (MarketWatch) — European stocks ended deep in the red on Tuesday, as worries about Greece’s political uncertainty and position in the euro overshadowed data showing that Germany’s economy grew in the first quarter.
The pan-European Stoxx 600 index /zigman2/quotes/210599654/delayed XX:SXXP +0.04% dropped 0.7% to 245.76, a new closing low for the year.
In Athens, the ASE Composite slumped 3.6% to 562.88, while the euro /zigman2/quotes/210561242/realtime/sampled EURUSD +0.0479% dropped 0.5% against the dollar to $1.2764.
The losses came as the Greek Socialist leader Evangelos Venizelos said the country was heading for new elections after talks between parties to form a coalition government failed. A statement from Greek President Karolos Papoulias also said that talks had failed to reach consensus.
Opinion: The other Greek tragedy
What would happen if Greece were to leave the euro zone? Photo: Getty Images
The concerns over Greece prompted investors to sell European banking shares.
National Bank of Greece /zigman2/quotes/203923076/delayed GR:ETE -0.58% sank 3.4%.
Société Générale SA /zigman2/quotes/206663756/delayed FR:GLE -0.56% dropped 4.2% in Paris, UniCredit SpA /zigman2/quotes/200769686/delayed IT:UCG -0.29% declined 5.5% in Milan and Commerzbank AG /zigman2/quotes/200193353/delayed DE:CBK +1.46% shed 5.2% in Frankfurt.
Bucking the trend in Germany, steelmaker ThyssenKrupp AG /zigman2/quotes/200968045/delayed TYEKF +8.20% shares advanced 1.6%, although the company swung to a wider-than-forecast quarterly loss as weaker steel demand and prices took a toll on its European operations.
On Monday, the Stoxx 600 lost 1.8% to reach a 2012 closing low on speculation that Greece could soon find itself heading for a euro-zone exit.
Investors also digested economic data on Tuesday.
On a seasonally adjusted basis, German gross domestic product advanced a stronger-than-expected 0.5% in the first quarter, a return to growth from a 0.2% dip in the fourth quarter of last year.
Nonetheless, Mike McCudden, head of derivatives at Interactive Investor, said that “storm clouds still hang over the euro zone.”
“With the ongoing Greek saga raising deeper contagion concerns throughout the euro zone amid a general backlash against austerity measures, [French President François] Hollande and [German Chancellor Angela] Merkel have around 24 hours to announce a plan which will offer some hope to the markets.”
France also reported growth figures on Tuesday, saying the economy was steady in the first quarter compared with the fourth quarter of 2011. The result was in line with estimates. French GDP had ticked up 0.1% in the fourth quarter.
Both nations avoided the technical definition of recession: two consecutive quarters of negative economic growth. Germany economy returns to growth; France GDP holds steady
Italy’s economy didn’t fare as well. The southern European nation’s economy shed 0.8% in the first quarter, and its economy has now contracted for three consecutive quarters. Italy’s economy shrinks
The broader euro-zone GDP measure, meanwhile, held steady on a quarterly and yearly basis, the statistical office of the European Union, Eurostat, said. Euro-zone GDP flat
The Italian FTSE MIB dropped 2.6% to 13,311.36 and the Spanish IBEX 35 index /zigman2/quotes/210597995/delayed XX:IBEX +0.19% lost 1.6% to 6,700.70.
The U.K.’s FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +0.63% declined 0.5% to 5,437.62, with shares of hedge-fund manager Man Group PLC /zigman2/quotes/206517236/delayed UK:EMG +0.79% down 3.8%.
International Consolidated Airlines Group /zigman2/quotes/208070069/delayed UK:IAG -1.02% lost 6% after J.P. Morgan Cazenove downgraded its rating on the stock to neutral from overweight.