European stocks hit by Russia sanctions worries

Europe's main stock markets fell on Thursday, weighed down by concerns of escalating tensions between the West and Russia, after the ECB left its monetary policy unchangedFrankfurt's main DAX index dropped 1.0 percent to 9,038.97 points, while in Paris the CAC 40 tumbled 1.36 percent at 4,149.83 points, compared with Wednesday's close.
London's benchmark FTSE 100 index shed 0.58 percent to 6,597.37 points after the Bank of England also chose to hold its key interest rate at a record low.
"Stocks in Europe were ready to mimic the reversal of losses seen in the US yesterday but some of the bullishness was sucked out of the market when Russia retaliated with its own set of sanctions with a ban on food imports," said Jasper Lawler at CMC Markets.
The European Central Bank held its key interest rates unchanged at 0.15 percent at its regular policy meeting on Thursday, two months after easing monetary conditions in the 18-country euro area.
Speaking after the decision, president Mario Draghi warned that the eurozone recovery "remains weak, fragile and uneven" and recent data showed "a been a slowing down in the growth momentum".
Draghi also sought to allay concerns that the euro's strength is harming growth, adding that "the fundamentals for a weaker exchange rate are better than they were two or three months ago".
In foreign exchange trading, the euro dipped to $1.355, down from $1.3381 late in New York on Wednesday.
Gilles Moec at Deutsche Bank said the lack of change from the ECB shows "its confidence that its latest policy moves in June provide a credible underpinning to their scenario of a gradual recovery and slow normalisation of inflation".
In London, the Bank of England also opted to keep its main interest rate at a record-low level of 0.50 percent against a backdrop of solid British economic growth.
Markets had been shaken on Wednesday by news that Italy fell back into recession in the second quarter while factory orders in Germany, the bloc's powerhouse, cratered by 3.2 percent in June.
The news hit shares, adding to concerns that a "full embargo" by Russia on most food imports from EU, US, and other Western countries could hurt the bloc's economy.
- Wall Street opens higher -
Concern about the Ukraine conflict weighed on Wall Street after a positive open, despite better-than-estimated earnings and a drop in US jobless claims.
In mid-afternoon deals, the Dow Jones Industrial Average dipped 0.29 percent to 16,395.76.
The broad-based S&P 500 shed 0.37 percent to 1,913.22, while the tech-rich Nasdaq Composite Index lost 0.14 percent to 4,349.08.
Russia retaliated against tough new Western sanctions on Thursday, banning most food imports from the United States and the European Union and threatening to block flights over its airspace.
The tit-for-tat moves further heighten tensions between Russia and the West over the conflict in Ukraine, where heavy shelling was reported in the rebel-held eastern city of Donetsk.
"If this continues, it will continue to weigh on sentiment and would presumably hurt equities in Europe more than those in the US," said Capital Economics in a note.
The sanctions target imports of beef, pork, fruit and vegetable produce, poultry, fish, cheese, milk and dairy products from the European Union, United States, Australia, Canada and Norway.
EU producer groups warned that the embargo could lead to a glut of food in the European Union, as Russia buys some 10 percent of the bloc's food exports.
In corporate news, shares in Nestle rose 3.43 percent after the world's largest food industry group posted a slump in earnings and sales for the first half of the year, blaming the strong Swiss franc.
Rio Tinto shares dropped 0.52 percent, despite news the mining giant's its first-half net profit more than doubled to $4.4 billion, driven by surging iron ore shipments and cost cutting.
The euro rose to 79.29 pence from 79.41 pence on Wednesday. The pound slipped to $1.6842 from $1.6851.
On the London Bullion Market, the price of gold fell to $1,305.25 an ounce from $1,306.50