European shares hit by euro zone, U.S. fiscal fears

A woman looks at computer screens at Madrid's bourse August 2, 2012.

LONDON (Reuters) - European stocks fell sharply on Wednesday after persistent worries over the euro zone economy and fiscal problems in the United States eclipsed initial relief over U.S. President Barack Obama's re-election.

European stocks had rallied in morning trade and the FTSEurofirst 300 .FTEU3 hit a level not seen for nearly two months as Obama's win fuelled hopes the U.S. Federal Reserve would maintain its loose monetary policy.

But a fresh gloomy take on the outlook for the European economy, this time from the European Commission, which said the euro zone economy would barely grow next year, kick-started a long slide into the close for European indexes.

And while investors were relieved over Obama's win, they remained concerned about the U.S. "fiscal cliff" of about $600 billion in spending cuts and tax hikes set to begin early 2013, which could jeopardize growth.

"The fact that the election had gone swimmingly, there were no glitches, it was a clear winner," had helped markets open higher," Angus Campbell, head of market analysis at Capital Spreads, said.

"Then you get the downgrades to GDP for the euro zone and then you get the U.S. markets opening, and they're the ones that turned the focus onto the fiscal cliff and suddenly you get this huge sell-off."

The FTSEurofirst 300 .FTEU3 provisionally closed down 1.4 percent at 1,099.20, while on Wall Street all three major indexes were down around 2.5 percent.

($1 = 0.6257 British pounds) (Reporting by Tricia Wright; editing by Simon Jessop)