US and European stocks retreated Tuesday as investors reacted cautiously to the calling of a British election by Prime Minister Theresa May.
May's decision to hold a snap vote in Britain adds to an already heavy political calendar in 2017 with upcoming votes in France and Germany having major implications for the eurozone. The first round of the French presidential election is scheduled for Sunday.
At the close, the London FTSE 100 index of leading shares had slumped 2.5 percent, while the Paris CAC 40 shed 1.6 percent and Germany's DAX lost 0.9 percent, despite a 28 percent rise in first quarter profits at car giant Volkswagen (IOB: 0P6N.IL - news) .
US equities were on the back foot all day, with the S&P 500 finishing down 0.3 percent following mixed corporate earnings.
"I think that most of today's sell-off seems to be driven by Europe," said Karl Haeling of LBBW.
"The European market did not respond to yesterday's US rally and seems to be more worried about their own situation."
The FTSE's dive was its biggest one-day fall since last year's referendum vote to leave the European Union. It was exacerbated by a sharp fall in mining equities after metals prices dropped.
- Pound rallies -
In a surprise announcement, May called for an early general election on June 8 as Britain prepares for delicate negotiations on leaving the European Union by 2019.
May "would not have called the elections without a great deal of confidence that she will win and based on sterling's reaction investors also believe that Conservatives will sweep the votes," said BK Asset Management managing director Kathy Lien.
"If she succeeds like the market expects, the support of her people gives her strong negotiating power with the European Union."
Sterling, which has lost some ten percent of its value since last year's surprise referendum vote to leave the EU, added 2.2 percent to $1.2840.
Meanwhile, an unpredictable race has narrowed dramatically in recent days in France, with polls suggesting four candidates are vying for a May 7 run-off.
Scandal-hit conservative Francois Fillon and radical leftist Jean-Luc Melenchon are steaming up behind the two frontrunners -- market-friendly candidate Emmanuel Macron and French far-right leader Marine Le Pen (Other OTC: PENC - news) .
Among individual companies, Volkswagen shot up 4.4 percent after reporting that operating profit increased 28 percent to 4.4 billion euros ($4.7 billion) in the first quarter.
Goldman Sachs (NYSE: GS-PB - news) dropped 4.7 percent after it reported first-quarter earnings of $5.15 per share, below the $5.31 estimated by Wall Street analysts, due in part to a disappointing performance in its trading division.
- Key figures at 2100 GMT -
New York - Dow: DOWN 0.6 percent at 20,523.28 (close)
New York - S&P 500: DOWN 0.3 percent at 2,342.19 (close)
London - FTSE 100: DOWN 2.5 percent t 7,147.50 points (close)
Frankfurt - DAX 30: DOWN 0.9 percent at 12,000.44 (close)
Paris - CAC 40: DOWN 1.6 percent at 4,990.25 (close)
EURO STOXX 50: DOWN 0.9 percent at 3,418.86
Tokyo - Nikkei 225: UP 0.4 percent at 18,418.59 (close)
Hong Kong - Hang Seng: DOWN 1.4 percent at 23,924.54 (close)
Shanghai - Composite: DOWN 0.8 percent at 3,196.71 (close)
Euro/dollar: UP at $1.0732 from $1.0643
Pound/dollar: UP at $1.2840 from $1.2565
Dollar/yen: DOWN at $108.45 from 108.97 yen
Oil - Brent North Sea: DOWN 47 cents at $54.89 per barrel
Oil - West Texas Intermediate: DOWN 24 cents at $52.41