Europe close: Stocks drop after weak service sector PMIs

European stocks fell sharply on Tuesday, with cyclicals under pressure as soft data releases prompted growth concerns and International Monetary Fund boss Christine Lagarde called on global policymakers to pass a range of economic reforms.

The benchmark Stoxx Europe 600 index finished 1.90% lower, France’s CAC 40 was 2.18% weaker and Germany’s DAX lost 2.63%.

With worries about growth on investors’ minds, cyclical stocks – whose performance is closely tied to the overall economy – took the brunt of the selling, with the Stoxx 600 basic resources index down 3.59% and the corresponding sub-index for banks off 3.23%.

Lagarde said the global economic expansion “remains too slow, too fragile and risks to its durability are increasing”.

According to some market chatter the Washington-based lender was likely take an axe to its global GDP forecasts for 2016.

Negative surprise from the services sector

Tuesday's macroeconomic news weighed heavily on sentiment.

Services data for the Eurozone was particularly discouraging.

Markit’s final Eurozone composite output index came in at 53.1 in March, a touch higher than February’s reading of 53 but below the flash estimate and consensus of 53.7.

The downward revision of the index between the 'flash' estimate and final reading was mainly driven by France and Italy, which combined explained 0.5 points out of the 0.6 point downshift.

The final Eurozone services business activity index printed at 53.1, down from the flash estimate of 54 and below February’s 53.3 reading.

In parallel, figures from Germany's Federal Office of Statistics showed factory orders unexpectedly dropped in February.

Factory orders fell 1.2% on the month, marking their lowest reading in six months and missing economists’ expectations for a 0.3% increase.

Still, the January reading was revised up to show a 0.5% rise from a 0.1% fall.

On the year, factory orders were up 0.5%, falling short of expectations of a 2.2% increase.

It wasn’t all bad news on the macro front, however, with retail sales in the Eurozone rising 0.2% on the month in February versus expectations of a flat reading.

On the year, sales in the 19 countries that share the euro rose 2.4%, beating economists’ expectations of a 1.9% increase.

Crude futures stabilise

Oil prices recovered despite ongoing concerns about a supply glut, even as hopes of a coordinated freeze agreement at the upcoming meeting in Doha continued to fade. West Texas Intermediate was up 0.17% to $35.76 a barrel and Brent crude was edging higher by 0.11% at $37.73.

Nonetheless, the Stoxx 600 oil and gas index slipped 2.13%.

In corporate news, Peugeot Citroen skidded after its chief executive officer outlined plans to return to consistent sales growth.

French hotels group Accor was also on the back foot after announcing the acquisition of UK home rental company Onefinestay for €148m (£118m).

Tesco was weaker after Deutsche Bank downgraded the stock to ‘hold’ from ‘buy’.