Europe open: Stocks slide as worries over China intensify

European stocks fell in early trade following another batch of disappointing data from China and amid rising geopolitical tensions.

At 0905 GMT, the benchmark Stoxx Europe 600 index was down 1.1%, while France’s CAC 40 and Germany’s DAX were both 1.2% weaker.

Caxin's service PMI dropped to a 17-month low of 50.2 in December from 51.2 the previous month, but still above the 50 that separates contraction from expansion.

Meanwhile, the composite index printed at 49.4 in December compared with 50.5 in November, moving into contraction.

Asian markets ended lower, with the exception of China, where the Shanghai Composite rallied amid reports that Beijing had spent billions buying shares following huge losses in the two previous sessions.

“News that the Chinese Caixin services PMI came in much lower than expected overnight has stirred fears that in addition to the already struggling manufacturing sector, services are also starting to be in trouble which would certainly not only deepen China's economic woes but also put the likelihood of a sustained economic rebound several months back,” said Markus Huber, senior analyst at Peregrine & Black.

Sentiment was also dented by news that the People's Bank of China set a weaker midpoint for the yuan, adding to concerns about the health of the world’s second-largest economy.

Claims from North Korea that it has successfully tested a miniaturised hydrogen nuclear device also weighed on the mood.

As geopolitical tensions mounted, defence stocks gained, with London-listed BAE Systems and France’s Thales both in the black.

Elsewhere, ARM Holdings, whose chips are used in Apple devices, was under the cosh following reports the US tech giant is expected to cut production of the iPhone 6S and 6S Plus by around 30% in the January-March quarter as a result of mounting inventories.

Dialog Semiconductor, which derives a large part of its revenues from Apple, was also firmly in the red.

In terms of sectors, basic resources and energy-related shares were the worst performers.

The Stoxx 600 basic resources index fell 2.4% amid growing worries about China, on which the sector is highly dependent.

Meanwhile, the sub-index for oil and gas slid 1.2% as oil prices declined, with West Texas Intermediate down 1.5% at $35.45 a barrel and Brent crude 4.3% weaker at $35.62, trading near 11-year lows.

With so much going on, Markit’s final Eurozone services purchasing managers’ index for December came and went with little fuss, showing a reading of 54.2 versus expectations of 53.9.

Still to come on the macroeconomic calendar, Eurozone PPI is at 1000 GMT. In the US, investors will have a raft of figures to sink their teeth into. The ADP employment report is at 1315 GMT, while trade balance data is at 1330 GMT. Industrial new orders, ISM non-manufacturing and durable goods orders are all due at 1500 GMT.