(MENAFN - AFP) European stock markets dipped deeper into the red on Tuesday as speculation grew that the US Federal Reserve will start scaling back its stimulus programme as soon as next month, dealers said.
The euro and sterling rose against the dollar, but sterling retreated sharply against the euro.
The mining sector was hit as newly-merged mining giant Glencore Xstrata revealed that it plunged to a huge first-half loss due to a write-down on the value of its assets.
"It looks pretty ugly today; the mounting worries about Fed's policy direction weakened the appetite for high returns and caused the rush of money out of emerging markets triggering the sell-off in Asia," said Gekko Markets trader Anita Paluch.
"This in turned sparked the sell-off in Europe, adding to the worries."
In afternoon deals, London's FTSE 100 index of leading shares dropped 0.63 percent to stand at 6,424.82 points.
Frankfurt's DAX 30 dipped 0.97 percent to 8,284.86 points and the CAC 40 in Paris shed 1.68 percent to 4,015.48 compared with Monday's closing values.
Asian equities mostly fell on Tuesday with attention returning to the Fed's stimulus programme as it prepares to release minutes of its latest meeting on Wednesday.
Emerging markets took a beating on expectations the Fed's quantitative easing will start to dry up. Their currencies also suffered heavy selling, with the Indian rupee hitting another record low against the dollar. Turkey raised its overnight rate to support the lira.
"Investors appear convinced the Federal Reserve will initiate tapering at next month's policy meeting," said analyst Ishaq Siddiqi at trading firm ETX Capital.
"Asian markets have benefited hugely on easy Fed cash over the years but with a reduction in liquidity due to tapering to contend with, there is growing concern that capital outflows from emerging markets will rapidly accelerate."
In company news, Europe's leading miners were undermined by news of a big loss for Glencore Xstrata.
The mining giant reported a switch into a first-half net loss of 8.9 billion on Tuesday owing to merger write-downs.
Publishing its first results since the merger, the new group took a charge of 7.6 billion to write down goodwill, meaning intangible assets which have a lower book value than the market value when they changed hands.
In reaction, London-listed Glencore Xstrata saw its share price slide 2.62 percent to 294.05 pence.
The Switzerland-based group said the write-down reflected the poor outlook for the mining industry and increased risks for big expansion projects and for the development of new sites.
In more gloomy news, Anglo-Australian mining giant BHP Billiton on Tuesday said net profit slumped 29.5 percent to US10.88 billion in the year to June, citing slowing global growth and commodity price volatility.
Shares in the world's biggest miner dipped 1.7 percent to 1,923.5 pence in London deals.
Added to the negative backdrop, European steelmaker ArcelorMittal was setback by a broker downgrade from Morgan Stanley.
In response, the world's biggest steelmaker saw its shares slump 3.4 percent to 9.838 euros in Paris.
In foreign exchange trading on Tuesday, the European single currency stood at 1.3420 compared with 1.3334 late in New York on Monday.
The dollar eased to 97.27 yen from 97.56 yen, while sterling fell back after a firm run to 85.63 pence against the euro from 0.853535 at the high point on Monday when one pound bought 1.17425 euros.
But sterling climbed on Tuesday to 1.5690 against the dollar -- the highest level for two months.
And India's rupee hit a new all-time low against the dollar on continuing fears that recent measures to stabilise the currency and kickstart the flagging economy will not work.
On the London Bullion Market, the price of gold increased to 1,365.75 an ounce from 1,365 on Monday.
Global markets have been in turmoil as investors fret over the future of the 85-billion-a-month Fed stimulus. Traders are worried that improving conditions mean the US economy will not need the help the central bank has been providing.
Despite the strains, Wall Street opened flat on Tuesday, helped by better-than-expected quarterly earnings from Home Depot and electronics retailer Best Buy.
Five minutes into trading, the Dow Jones Industrial Average lost 0.06 percent, while the broad-based S&P 500 rose 0.03 percent and the tech-rich Nasdaq Composite Index added 0.13 percent.