European stock markets have fallen, led by Wall Street profit-taking and nerves over continued sharp falls in Hong Kong. London was dragged down 1.5 per cent, its steepest decline in two months, upset by continuing uncertainty surrounding European economic and monetary union and dragged down by Hong Kong-linked shares.

France and Germany slid 1 per cent, shrugging aside the initial boost of the 139-point rise on the Dow Jones Industrial Average on Tuesday. In Dublin, the reaction was more muted, but the ISEQ index dropped by 13.45 points to 3857.38 US shares lost almost half of Tuesday's gain by the European close, undermined by a forecast third-quarter loss at Boeing which has problems expanding production smoothly. Boeing shares were $4 1/2 lower at $49 1/2.

European investors remain concerned the US market has assumed a perpetual "Goldilocks" scenario of nourishing growth and sleeping inflation. Last night the Dow Jones industrial index closed at 8034.65, 25.79.

Many fear the eventual arrival of the three bears - in this case inflation-stoking capacity bottlenecks, higher interest rates, and a switch of mutual fund savings into bonds and cash.

London's FTSE 100 index was hit by a sharp fall at Hong Kong-linked firms like HSBC Holdings, Cable & Wireless and Standard Chartered, plus September retail sales data which showed a sharp 1.9 per cent fall on the previous month, rather than the 0.5 per cent dip analysts had expected.

Investors continue to be unnerved by Britain's uncertain position on entry into European Economic and Monetary Union and the impact that has on the gilts market and on sterling.

The Chancellor of the Exchequer, Mr Gordon Brown, has promised to make an announcement on EMU soon to parliament, which reconvenes next week, and he may clarify whether or not Britain will join the single currency before the next election, due by 2002.

German shares reversed early gains, and in electronic trading the IBIS DAX index showed small losses.