On the Paris bourse there were further clear signs of investors retreating from highly priced media and technology stocks into more traditional sectors. Another negative start on the Nasdaq compounded the effect and seven stocks were suspended limit-down for losing 10 per cent or more. The CAC-40 index lost 2.5 per cent or 161.4 to 6,188.94.

On the main market, Canal Plus fell 10 per cent, losing €30.50 at €274.60, Lagardere lost 9.6 per cent, falling €9.60 to €90, STMicroelectronics 8.2 per cent or €17.20 to €193.20 and Equant 8 per cent or €9.50 to €109.

The FTSE Eurobloc 100 index fell 2.6 per cent to 1,425.43 and the FTSE Eurotop 100 index 1.7 per cent to 3,678.58. The FTSE Eurotop 300 index lost 1.8 per cent to 1,575.53.

The big falls were again balanced by some big rises as investors sought alternative sectors. Catering group Sodhexo Alliance rose 9.4 per cent or €12.40 to €144.90 and Aerospatiale-Matra 6.3 per cent or €1.20 to €20.28. Michelin, which has been on a steady decline all this year, rose 3.4 per cent or €1.09 to €33.05.

Frankfurt pushed lower, picking up on the negative themes seen on Monday when worries about rates and the growing imbalances for tech stock valuations hit sentiment.

Germany's quartet of tech-related leaders fell steeply with Siemens off €17.70 at €153 and SAP €69 at €921. Epcos lost €3.40 at €128.50 and Deutsche Telekom €6.21 at €81.89. The Xetra DAX index ended 235.59 lower at 7,414.46. Insurers were also among the hardest hit. Munich Re fell €8.05 to €287 and Allianz €5 to €392. Amsterdam finished lower after a session of high-powered sector rotation. The AEX index ended 17.16 lower at 644.03.

Milan was bruised by weakness in its telecoms sector and a further fall in Fiat as investors remained unenthusiastic about the motor group's accord with General Motors. The Mibtel index, down 4.5 per cent late in the session, recovered some of the deficit to close 1,126 or 3.3 per cent lower at 32,728.