Stocks fall on warning over Chinese iron ore demand

London's benchmark FTSE 100 index dropped 1.17 percent to 5,891.41 points, while in Paris the CAC 40 fell 1.32 percent to 3,530.83 points and in Frankfurt the DAX 30 lost 1.39 percent to end at 7,054.94 points.

In foreign exchange deals, the euro slipped to $1.3228 from $1.3237 late in New York on Monday.

"The effects of a China slowdown are all too apparent in European equity markets today," said Brenda Kelly, an analyst at traders CMC Markets.

Global mining giant BHP Billiton on Tuesday said that China's iron ore demand appeared to be flattening as the world's second-largest economy slows, but added that prices were expected to hold up.

BHP iron ore president Ian Ashby said he was confident that China would meet its five-year economic growth targets but iron ore demand would soon hit "single digits if it's not already there."

Mining shares quickly took a hit.

"Comments from BHP Billiton that demand for iron ore is dwindling have caused the mining sector to retreat with Fresnillo, Antofagasta and Rio Tinto among the worst casualties, all trailing near the bottom of the UK index."

China, the world's largest consumer of raw materials, forecast last week that its economy would grow by 7.5 percent this year, a marked slowdown compared with last year's 9.2 percent growth and expansion of 10.4 percent in 2010.

In London trading on Tuesday, the mining sector was a sea of red with BHP Billiton's share price sinking 4.05 percent to 1,965 pence and Fresnillo diving 5.01 percent to 1,687 pence.

Antofagasta lost 3.61 percent to 1,201 pence and Rio Tinto dropped 4.15 percent to 3,464.5 pence.

In Paris, shares in French steel titan Arcelor Mittal slumped 3.56 percent to 15.59 euros, while German industrial giant ThyssenKrupp retreated by 3.01 percent to 20.13 euros in Frankfurt.

Asian markets also beat a hasty retreat on Tuesday as dealers shrugged off a positive lead from Wall Street.

Hong Kong closed down 1.08 percent, Sydney shed 0.37 percent, Seoul lost 0.24 percent and Shanghai ended 1.38 percent lower. Tokyo was shut for a public holiday in Japan.

US stocks were also sharply lower on Chinese growth concerns and after a mixed report on the troubled US housing construction sector.

The Dow Jones Industrial Average dropped 0.51 percent to 13,171.78 points in midday trade.

The broad-market S&P 500 index lost 0.49 percent to 1,402.80 points, while the tech-heavy Nasdaq Composite shed 0.64 percent to 3,060.93 points.

"Concerns about economic growth in China are stymieing sentiment, causing the recent upward momentum for stocks to pause," Charles Schwab analysts said.

"A mixed read on US housing starts and building permits is doing little to help stocks continue their upward charge," they added.

US housing starts fell in February after a surge the previous month. Starts on privately owned housing totaled an annual rate of 698,000 units, a pace 1.1 percent below the revised January estimate of 706,000, the Commerce Department said.