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Economic, war gloom hits Europe

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LONDON, England (CNN) -- European markets accelerated losses in midday trading on Thursday amid worsening economic data and political deadlock over a war with Iraq.

The Bank of England shocked financial markets with a 0.25 percentage point interest rate cut to 3.75 percent. In doing so, the bank said the prospects for growth over the next two years was weaker than expected.

But the European Central Bank decided to leave its borrowing rate unchanged even as it biggest economy, Germany, saw industrial orders fell a bigger-than-expected 4.1 percent month on month in December. (Full story)

London's FTSE 100 slipped 1.3 percent to 3,631.7 and Frankfurt's electronically traded Xetra Dax dipped 2.6 percent to 2,656.06, while the CAC 40 blue chip index in Paris declined 0.5 percent to 2,868.6.

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, was down 1.4 percent.

Bourses rose on Wednesday on hopes U.S. Secretary of State Colin Powell would expedite a war with Iraq and lift the gloom and uncertainty hanging over the markets. But after the markets closed U.N. Security Council members did not budge from their opposition to war.

"If there had been a proper decision to go to war last night then there would have been a drop in risk aversion but instead we are still stumbling in the dark,'' Patrik Schowitz, a global equity strategist at HSBC Securities in London, told Reuters.

"When the shooting starts and it looks like it is going to be a short, sharp war then stocks should rally as the uncertainty will be lifted,'' he added.

And war concerns took their toll on oil companies. Shell Transport & Trading (SHEL), which owns 40 percent of Europe's biggest oil company Royal Dutch/Shell, fell 4.2 percent to 362.5 pence in London.

Its stock fell even as it posted Europe's biggest corporate profit in 2002 but the oil price boom of recent months, which have powered earnings growth, may come to an end. (Full story)

Rival BP (BP-) slid 3.3 percent to 384.25 pence in London, while France's TotalFinaElf (PFP) dipped 2.3 percent to 122.40 euros in Paris.

But there were some strong gainers, Sweden's Ericsson soared more than 10 percent to 6.50 euros after the world's biggest wireless network maker said Carl-Henric Svanberg would become its new president and chief executive. The announcement comes amid speculation the company was looking to replace Kurt Hellstrom. (Full story)

Another troubled telecoms group Cable & Wireless (CW-) climbed 3.9 percent to 60 pence after the Financial Times said Hong Kong's Pacific Century Cyberworks was interested in taking the firm over. PPCW denied it had made an approach.

The AEX index in Amsterdam slipped 2 percent and Milan's MIB30 lost 0.9 percent, while the SMI in Zurich dipped 1.7 percent.

In the U.S. on Wednesday, the questionable level of support from the United Nations pushed stocks lower after Iraq U.N. ambassador Mohammed Aldouri denied the validity Powell's evidence.

The Dow Jones industrial average slipped 0.3 percent, or 28.11 points, to 7985.18 and the Nasdaq composite also dipped 0.3 percent, or 4.65 points, to 1301.50, while the Standard & Poor's 500 index dropped 0.5 percent, or 4.61 points, to 843.59.

Wall Street was expected to open slightly lower later on Thursday. S&P 500 index futures fell 2.3 points to 842.20 on the Globex trading system, while fair value, a measure that takes account of interest costs and dividend payments, was calculated at 842.6.

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