Wall Street's attack of nerves is the latest and most worrying sign that Europe's stock market may be in for more pain before any gains from economic recovery are reaped. European stocks are being bogged down by the Dow's indecisiveness, a sickly dollar, worries about the millennium bug, the corrosive impact of higher interest rates on share valuations, and a revived Asia vying for global investor cash.
Still, Europe is optimistic that economic revival spurred by relatively low euro zone interest rates and a weak euro will shine through, if later than hoped for.
"We are in a transitional period between what was a liquidity-driven market and what will be a growth-driven market," said Mr Richard Davidson, European strategist at Morgan Stanley Dean Witter.
"I think we are looking at a trade-off between growth expectations and tighter monetary policy," agreed Mr Richard Reid, chief European economist at Donaldson Lufkin & Jenrette.
"I think we are much more confident about the growth recovery going into next year and I would be of the opinion that the market is too pessimistic about the amount of monetary tightening we are going to see," Mr Reid added.
But he warned stronger growth does not always mean higher profits as tougher competition will make it more difficult for some sectors, such as British retailing, to raise prices.
