Europe close: Shares start year in cautious mood on global worries

European shares closed lower on 2019's first trading day, with losses pared back by a brighter Wall Street opening, but investors still worried about weak global growth, trade wars and political risk.

The pan European STOXX 600 closed 0.3% lower after disappointing China data had sparked a sell-off at the opening. Paris was the heaviest faller, down almost 1%, while London, Frankfurt, Milan and Madrid were all in the green.

Overnight, survey compilers Caixin and IHS Markit had reported a drop in their manufacturing sector Purchasing Managers' Index from a reading of 50.2 in November to 49.7 for December, marking the lowest reading since May 2017 and the first contraction in 19 months while missing expectations of 50.1.

The figures confirmed a trend seen in the official PMI released on Monday, which slipped to 49.4 in December - its weakest level since early 2016.

"This is not a good indicator as we eye tariffs biting even harder in 2019 than they did last year,” said Neil Wilson, chief market analyst at Markets.com.

The mood wasn't helped as fresh surveys showed Euro zone manufacturing activity barely expanded at the end of 2018, although the late recovery was welcomed by analysts after a battering in 2018.

“Bruised by the volatility of Q4 2018, investors aren’t yet grabbing the chance to buy the dip with both hands, but it is at least encouraging to see a continuation of the move higher instead of the relentless selling of the past few weeks,” said IG chief market analyst Chris Beauchamp.

Corporate news was thin on the ground, but on the markets miners suffered heavy losses on the back of the Chinese data, with Glencore, Antofagasta, Anglo American and BHP among the worst performers on the FTSE 100 throughout the session as investors offloaded to seek shelter elsewhere.

Energy shares on the other hand received a late boost, with BP, Shell, Premier Oil and Tullow Oil all higher on reports of a cut in Saudi exports last month.

In early trade on Wednesday, the risk-off environment was weighing on oil, traders said, with Brent and WTI crude were down 2% to $52.59 and $44.51 a barrel respectively mid morning.

"Both are around 40% off their highs of only three months ago and continue to look vulnerable, albeit to a lesser extent than they have in recent months," said market analyst Craig Erlam at Oanda.

"Slower global growth is clearly a strong headwind for oil but I wonder whether the doom and gloom is a little overdone and with OPEC+ seemingly committed to bringing balance back into the market, the bottom may not be far away. Traders may simply be waiting for some evidence that more output cuts will have the desired effect in a world where the US is increasing its dominance thanks to a booming shale industry."