European stocks fall as Cyprus stokes eurozone panic

European markets’ slide represents the steepest decline in 4 months European stock markets slid on Thursday as traders looked past strong Chinese economic data to focus on bleak eurozone news, notably fallout from the Cyprus bailout impasse. London's FTSE 100 index of leading companies dropped 0.74 percent to 6,385.35 points, as investors cheered positive British economic data a day after Britain's newest austerity budget.
In Frankfurt, the DAX 30 lost 0.81 percent to 7,937.08 points and in Paris the CAC 40 shed 1.0 percent to 3,790.32 points.
Madrid's IBEX 35 shares index declined 0.63 percent and Milan's FTSE Mib gave up 0.11 percent in value.
"The ongoing turmoil in Cyprus saw equity traders offer stocks lower...as risk appetite was tempered by an uncertain eurozone backdrop," said Matt Basi, head of UK sales trading at CMC Markets.
Cyprus politicians on Thursday agreed to set up an investment fund as part of a Plan B to secure a bailout deal with eurozone lenders, while ruling out a tax on bank deposits that sank an earlier deal.
"Following a proposal by (President Nicos Anastasiades) there was a consensus reached and a unanimous decision was taken for the setting up of an Investment Solidarity Fund," government spokesman Christos Stylianides said in a statement.
Other political leaders emerging from a crisis meeting with Anastasiades to hammer out a revised bailout plan said the subject of a "haircut" on bank deposits had been ruled out completely.
The Cyprus drama sent European share prices crashing on Monday and Tuesday but equities recovered on Wednesday as the market awaited further developments.
"Stocks have tumbled as Cypriot uncertainty continues after the country rejected the proposal to raid people's savings in exchange for a full-scale bailout," IG market analyst David Madden said on Thursday.
"Cyprus itself doesn't pose a threat to the European financial system but it drags the eurozone debt crisis back into the headlines. Traders have enjoyed a good run since the start of the year and the Cyprus situation has given them a reason to bank some profits."
Madden added: "China revealed better-than-expected manufacturing numbers overnight, but this failed to attract investors to mining stocks...as weak manufacturing figures from the eurozone raised growth concerns for the region."
In London foreign exchange deals, the euro fell to $1.2906 from $1.2937 in New York late on Wednesday. The British pound jumped to $1.5184 from $1.5103 Wednesday and was higher also against the European single currency.
Gold prices edged higher to $1,608.82 an ounce from $1,607.50 Wednesday on the London Bullion Market.
Elsewhere on Thursday, a leading growth indicator showed private business activity across the eurozone hit a four-month low in March as the downturn intensified.
The Purchasing Managers' Index published by London-based Markit fell to 46.5 points in March against 47.9 in February, the estimate showed.
The fall marked a quickening rate of contraction of business activity for the second consecutive month and showed the steepest fall in four months.