European stock markets closed sharply lower on Friday as weak US data and comments from the US central bank chief sparked fresh concerns that the world's biggest economy is falling into recession.
Dealers said growing uncertainties about the US economic outlook unsettled investors who may have thought the worst of the global credit crunch was over, with the latest news flow almost uniformly negative.
At the same time, a steadily sinking US dollar, which plumbed record lows against the euro on Friday, and record high oil prices added to the negative tone.
The prospect that central banks will face both rising inflation and slowing growth -- "stagflation" -- has become a real concern again, especially after US Federal Reserve Chairman Ben Bernanke's remarks on the outlook this week.
While sending the signal that the Fed was likely to cut interest rates again in an effort to keep the US economy on track, Bernanke also acknowledged that inflation and a credit squeeze now made policy making more difficult.
Dealers said the latest developments have compounded persistent concerns about the collapse of the US housing market and the resulting credit crunch.
In London, the FTSE 100 index closed down 1.36 percent to 5,884.30 points, in Paris, the CAC 40 index lost 1.53 percent to 4,790.66 points, while in Frankfurt the DAX tumbled 1.67 percent to 6,748.13 points.
The Euro STOXX 50 index of leading European shares was down 1.58 percent at 3,724.50 points.
Weak consumer spending figures also dampened sentiment, dealers said.
"Real consumer spending was flat for a second consecutive month in January as households limped into 2008 reeling from higher energy costs, falling home values, less credit availability and weakening employment," said Peter Kretzmer at Bank of America.
Al Goldman, market strategist at AG Edwards, said the outlook for the economy and stock market remained unclear.
"Investors have been hit by a ton of fundamental negatives from a likely recession, stagflation, the collapse of the home building industry and of course billions of write-offs by leading financial companies," Goldman said.
Elsewhere in Europe, the BEL 20 in Brussels held up relatively well, losing only 0.15 percent to 3,757.12 points, but Madrid's IBEX-35 was down 0.77 percent at 13,170.40 points, the MIB in Milan was down 1.37 percent to 34,082 points, Amsterdam's AEX shed 1.41 percent to 446.53 points and Switzerland's SMI fell 1.68 percent to 7,533.86 points.
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