A trader speaks on telephone near toy bull figures at the Frankfurt Stock Exchange yesterday. Frankfurt’s DAX 30 fell 1.59% to 9,400.04 points in yesterday’s trading.

AFP/London

European stock markets sank yesterday, sharply reversing initial gains, as investors reacted to poor Chinese manufacturing data and took profits on the first trading day of 2014.

Financial markets also digested mixed news on the health of the eurozone’s manufacturing sector.

At close, London’s benchmark FTSE 100 index ended the day down 0.46% at 6,717.91 points.

Frankfurt’s DAX 30 fell 1.59% to 9,400.04 points and the CAC 40 in Paris shed 1.60% to 4,227.28 points.

“The rally witnessed in the past week has been subjected to profit-taking,” said strategist Brenda Kelly at trading firm IG.

“Factory activity growth in China has blighted sentiment and helped to cap gains in equities. Both the official Chinese PMI number and the HSBC metric showed a slowing in the country’s manufacturing sector in December.”

The sell-off came after all three European markets reaped impressive gains in 2013, with London, up 14.4%, Paris gaining 18% and star performer Frankfurt soaring 25.5% on global economic optimism.

But on Wednesday, Beijing’s official purchasing managers’ index (PMI) for December came in at 51.0, down from November’s 51.4 and below the median 51.2 forecast of eight economists by The Wall Street Journal. It marked the 15th straight month of growth but it is the first time since June that the figure has dipped from the previous month.

And yesterday, HSBC said its China PMI dipped to 50.5 last month from 50.8 in November.

The results raised concerns about the state of the world’s number two economy — which is a key driver of regional and global growth — with analysts fearing it has slowed in recent months despite a pick-up in the middle of the year.

“It seems the data out of China is setting the tone for the day — manufacturing activity in the world’s second-biggest economy appears to slowdown,” said Varengold Bank analyst Anita Paluch.

In contrast, manufacturing activity in the eurozone posted its strongest growth in 31 months in a fresh sign of recovery, though France remained a weak point, a key survey showed yesterday.

Markit Economics revealed that its Eurozone Composite Purchasing Managers Index (PMI) for December rose to 52.7 from 51.6 in November, the third consecutive monthly rise.

Germany, Italy and Spain recorded the strongest rises in output since early 2011 but France on the other hand saw a steepening downturn in part due to a fall in exports.

In midday trade, the Dow Jones Industrial Average fell 0.69% to 16,461.68.

The broad-based S&P 500 fell 0.85% to 1,832.66, while the tech-rich Nasdaq Composite Index gave up 0.85% to 4,140.94 points.