London - European shares fell on Friday as the US Federal Reserve's downbeat comments on the state of the global economy overshadowed its decision to keep interest rates on hold.
The pan-European FTSEurofirst 300 index declined by 0.9 percent while the euro zone's blue-chip Euro STOXX 50 index fell 1 percent.
The Fed left interest rates unchanged on Thursday amid worries about the global economy, financial market volatility and sluggish inflation at home. It left open the possibility of modest rate rises later this year.
Traders said uncertainty over when the Fed would eventually raise rates was weighing on stock markets, along with the Fed's comments about pressures caused by signs of a slowdown in China.
Banks, which often make more money in a higher interest rate environment, were among the worst-performers while exporters such as carmakers and luxury good stocks - for whom China is a key market - also lost ground.
The STOXX Europe 600 Banks index underperformed to fall 1.6 percent, while the European automobile sector declined 1.7 percent.
“It's the uncertainty over the state of the economy, and a sense of unfinished business over when the Fed will make its move, that is weighing on markets,” said Mirabaud Securities' senior equity sales trader John Plassard.
Hella slumps
Shares in Hella, a German manufacturer of auto headlights and electronics, slumped 8.6 percent after issuing a profit warning due to problems in China.
However, France's Ingenico surged 10 percent after rival payment systems company Worldpay went for a stock market flotation instead of a sale. Ingenico shares had previously fallen on concerns it could make an expensive bid for Worldpay.
In spite of Friday's pull-back, some investors and analysts were still backing European shares, arguing that the region's equity markets would be supported by economic stimulus measures from the European Central Bank.
Lex Van Dam, hedge fund manager at Hampstead Capital, said equities remained his preferred asset class since returns on bonds and cash were still depressed by the low interest rates set by major world central banks.
Goldman Sachs Asset Management, however, warned of more market volatility given uncertainty over when the Fed would eventually raise rates.
“We believe an October rate hike is unlikely and the December meeting is a toss-up. We think this delay could dampen market volatility in the near term, though uncertainty about Fed policy could lead to more volatility as the December meeting approaches,” it wrote in a note to clients.
REUTERS