Europe midday: Shares extend early losses on dovish Fed

LONDON (ShareCast) - (ShareCast News) - European stocks extended earlier losses as the Federal Reserve's downbeat assessment of the global economy and decision to stand pat on rates prompted worries about growth. At midday, the benchmark Stoxx Europe 600 index was down 1.7%, while France's CAC 40 and Germany's DAX were both 2.5% weaker.

Cyclical sectors, which are highly-correlated to the overall economy, suffered the brunt of the selling. The Stoxx 600 banks index was down 2.6%, while the corresponding index for basic resources was 1.7% weaker.

Fed chair Janet Yellen said on Thursday that the slowdown in China and recent market volatility played a part in the decision to keep rates on hold, although she also pointed out that the central bank had not turned "significantly less confident".

In addition, Yellen said a rate hike next month was still a possibility.

The policy statement highlighted "solid job gains and declining unemployment" and reiterated that "economic activity will expand at a moderate pace".

However, FOMC members lowered their long-term inflation projections and their growth estimates.

"The FOMC claims that its outlook for the US economy is 'not fundamentally altered' and the risks are still 'nearly balanced'. And yet, the Committee appears to be more concerned about the downside risks - notably the slowdown in China and potential spill-over effects thereof - because it decided not to raise rates on Thursday," said Societe Generale (Swiss: 519928.SW - news) .

The bank maintained its central scenario for one move this year. "Given yesterday's messaging, December appears more likely than October," it said.

Meanwhile, Mike van Dulken, head of research at Accendo Markets said it was uncertainty weighing on investors' minds.

"Markets had anticipated either a dovish hike (easy does it) or a hawkish hold (be prepared), but the potential 'surprise' (we remain concerned) we had discussed was duly delivered. While markets had desired clarity, it appears that uncertainty and volatility may be here to stay," he said.

On the corporate front, shares in German utility RWE (Xetra: 703712 - news) slipped after the company ruled out selling a stake to a Middle East investor.

UniCredit (EUREX: DE000A163206.EX - news) was on the back foot following media report that the Italian bank is planning to cut about 1,500 jobs at its German subsidiary.

In terms of macro news, figures released earlier showed the Eurozone current account surplus declined in July.

According to the European Central Bank, the current account balance, a gauge of an economy's international financial position, recorded a €22.6bn surplus in July compared with a €24.9bn surplus in June.

In the 12 months to July surplus amounted to 2.6% of the Eurozone gross domestic product, compared with 1.8% a year earlier.

Still to come, investors will look to the release of US leading indicators at 1500 BST.