European shares slide to six-month low as recession fears rise

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UPDATE 2-European shares slide to six-month low as recession fears rise

(For a live blog on European stocks, type LIVE/ in an Eikonnews window)

* Germany economy shrinks in Q2

* Inversion in U.S. yields signals upcoming recession

* Bank sector at over 3-year low (Updates with closing prices)

By Susan Mathew and Shreyashi Sanyal

Aug 14 (Reuters) - European stocks tumbled to a six-monthlow on Wednesday, as an inversion in the U.S. yield curvefollowing bleak data out of major economies including Germanyand China pointed to a looming recession.

Slumping exports sent Germany's economy into reverse in thesecond quarter, while Chinese industrial output growth cooled toa more than 17-year low in July, underscoring the impact of abruising U.S.-China trade war on global growth.

Industrial data from the euro zone in June also had a poorshowing. urn:newsml:reuters.com:*:nL8N25A1D1urn:newsml:reuters.com:*:nL8N25A30F

"A lot investors may look at this morning's (yield)inversion and consider it an exit sign," said Mike Loewengart,vice president of investment strategy at E*E*TRADE Financial Corp.

The benchmark pan-European STOXX 600 .STOXX index closeddown 1.7%, having touched its lowest since Feb. 15, with indexesin GermanyGDAXI , France.FCHI , and political crisis riddledItaly .FTMIB falling more than 2%.

Yields on two-year treasury notes rose above the 10-yearyield for the first time since 2007, a metric widely viewed as aclassic recession signal. That saw government borrowing costs inGermany fell to record lows. US/GVD/EUR

The downbeat mood in markets came after a rare day of reliefafter Washington delayed tariffs on certain Chinese goods.

"Its reasonably evident by Germany's GDP contraction and thedreadful Eurozone IP data that the U.S.-China tariff war ishurting Germany's export-skewed manufacturing sector, which isnow bringing forward a real debate on fiscal stimulus inGermany," wrote Stephen Innes, managing partner at VM Markets.

"But on a positive note, embarking on an aggressive fiscalprogram while having the markets paying you to do so, givennegative-yielding bonds, it might not but such a bad thing atall," Innes added.

All sectors were well in the red, with trade-sensitivetechnology .SX8P slumping 3%. The Frankfurt-dominated autoindex .SXAP followed with a 2.8% drop, while falling yieldstook banks .SX7P to a more than three-year low.

Stalled growth across Europe has been led by a slowdown inthe eurozone's largest economy, Germany, while the fallout fromWashington's trade war with China, Brexit uncertainty, andItaly's political woes have also plagued the trading bloc.

The pan-regional index has lost more than 5% so far thismonth, on course to match a 5.7% tumble in May which was itsbiggest decline in more than three years.

Limiting the index's losses were gains in some consumerstaples, healthcare and utility stocks, as investors turned todefensive plays.

Balfour BeattyBALF.L topped the STOXX 600, up 9.3% afterthe British infrastructure company reported higher first-halfunderlying pretax profit and increased its annual cash forecast. urn:newsml:reuters.com:*:nL4N25A1X2 (Reporting by Agamoni Ghosh, Shreyashi Sanyal and Susan Mathewin BengaluruEditing by Bernard Orr and David Holmes) ((Agamoni.Ghosh@thomsonreuters.com; +918067491130))

This article appears in: Politics , World Markets , US Markets , Stocks

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