By Sara Sjolin
LONDON (Dow Jones)--European stocks tumbled Tuesday, as a political deadlock in Greece fueled fears of further economic turmoil in the euro zone, pushing the Greek equities index to its lowest finish in nearly two decades.
The Stoxx Europe 600 index sank 1.7% to 250.58.
Across the Atlantic, stocks traded broadly and deeply lower on Wall Street.
It wasn't all gloom and doom: Posting the biggest gain in Europe, shares of Royal KPN rallied 17% to 7.58 euros, after Mexican telecommunications firm America Movil said late Monday it plans to increase its stake in the Dutch carrier to as much as 28%. America Movil offered EUR8 a share.
But the broader European markets were sent plunging as a political deadlock in Greece following Sunday's elections spurred concerns about further turmoil to come for the debt-laden country.
In Athens, New Democracy leader Antonis Samaras said Monday it was impossible to form a coalition government, opening a door for the second-biggest party, Coalition of the Radical Left, which has vowed to renegotiate the country's bailout conditions.
"It may be difficult for whatever government emerges to implement the measures required by the troika"--the European Central Bank, the European Union and the International Monetary Fund--"as a precondition for the disbursements of the next program tranches," analysts at Morgan Stanley said in a note.
Accordingly, "another default cannot be ruled out" and sets in motion "another escalation of the crisis" for Europe, they wrote.
Greece's ASE Composite Index closed at its lowest level since late November 1992, dropping a further 3.6% to 620.54, with National Bank of Greece SA down 8.4%.
The index closed 6.7% lower on Monday.
Banks also traded lower in France, where BNP Paribas SA gave up 3.8%, Societe Generale SA lost 4.8% and Credit Agricole SA shed 2.6%.
The CAC-40 index lost 2.8% to 3,124.80. Heavyweight oil group Total SA also weighed on the Paris benchmark, off 2.9%, as it tracked oil prices lower.
Crude oil for June delivery tumbled to a three-month low in the prior session and plumbed levels below $97 a barrel in New York.
Electricite de France SA gave up 3.3% after Goldman Sachs cut its rating to neutral, down from buy previously.
Meanwhile, the German DAX 30 index lost 1.9% to 6,444.74, with Commerzbank AG off 3.4% and Deutsche Bank AG down 2.5%.
Overshadowed by developments elsewhere, economic data showed German industrial production rose a seasonally adjusted 2.8% in March, beating economists' surveyed by Dow Jones Newswires forecast of a 1% increase. Early trade on the German bourse had been halted due to technical problems.
In Spain, shares of Bankia SA sank 4.8%.
Chairman Rodrigo Rato stepped down late Monday, following news that the Spanish government is devising a rescue plan for the bank. The government denied that it has placed Bankia under administration, but is still going to pump EUR7 billion to EUR10 billion into the ailing institution, said Predrag Dukic, senior equity sales trader at CM Capital Markets in Madrid.
"Bankia has more than 20% of the real estate assets in Spain so it's a big player. Investors interpret the government move as a sign that the uncertainty over the banking sector will be removed," he said.
"It's good in a way, but it only buys more time in my opinion. This is public money going into a bank, so it's just postponing the problems and giving us a little more time to deal with the crisis," Dukic added.
The IBEX 35 index gave up 0.8% to 7,006.90.
Also Tuesday, Roche Holding AG lost 1.5%, after J.P. Morgan Cazenove cut its rating to neutral from overweight. The drug maker was among worst-performing companies in Europe Monday, as it said it had stopped a trial of heart-disease drug dalcetrapib after disappointing data.
"Without upside from the non-oncology pipeline, Roche's scope for multiple expansion to a significant sector premium seems much reduced, which should limit the upside from here," Alexandra Hauber from J.P. Morgan Cazenove said in a note.
In the U.K., energy firms traded lower, with BG Group PLC dropping 3.5% and Royal Dutch Shell PLC dropping 2.7%.
Tullow Oil PLC bucked the trend, up 3.3%, after the company discovered more oil in its Kenyan Ngamia well.
The FTSE 100 index fell 1.8% to 5,554.55, further pressured by weakness in mining shares as metals prices dropped across the board. Fresnillo PLC gave up 7.4%, Vedanta Resources PLC shed 5.6% and Rio Tinto PLC lost 3.3%.
Heavyweight bank HSBC Holdings PLC lost 1.2%, after having traded mostly in positive territory.
The company said underlying profit for the first quarter was boosted by its investment-banking division and emerging-market operations.
U.K. markets had been closed Monday for a holiday.
-By Sara Sjolin, 415-439-6400; AskNewswires@dowjones.com
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