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* German government cuts 2021 GDP forecast
* Markets hit by worries of frothy valuation
* Miners, banks, autos among top decliners
* Fed expected to keep dovish stance
(Updates to market close)
By Sruthi Shankar
Jan 27 (Reuters) - European stocks tumbled on Wednesday as
extended coronavirus lockdowns drove the German government to
slash its growth forecast for 2021, while talk of further
interest rate cuts by the European Central Bank hit banking
stocks.
After holding largely unchanged in morning trade, the
pan-European STOXX 600 fell into the red and closed
down 1.2% - its biggest single-day percentage fall in over five
weeks.
The global mood also soured as investors turned more
cautious about mounting coronavirus cases around the world and
about stretched stock valuations after retail investors piled
into some niche U.S. stocks, causing an eye-popping surge in
their market value within just days.
The German DAX underperformed major regional
indexes, falling 1.8%, after the growth forecast for
Europe's largest economy was cut to 3% for this year, a sharp
revision from last autumn's estimate of 4.4%.
Economy-linked stocks bore the brunt of Wednesday's selloff,
with miners, banks and automakers
falling between 2% and 3.6%.
"It can be a bit bumpy, especially the first half of the
year," said Matthias Scheiber, global head of multi-asset
solutions at Wells Fargo Asset Management in London.
"The lockdown will have a negative impact, but we are
generally positive on the value-oriented sectors because from a
valuation perspective, they are still cheap."
Euro zone banks came under pressure as a member of
the ECB's governing council, Klaas Knot, said the central bank
could decide to cut its deposit rate further below zero if that
proved necessary to keep its inflation target in sight.
Few if any changes were expected to the U.S. Federal
Reserve's policy statement, due at 1900 GMT, but Fed Chair
Jerome Powell was likely to renew a commitment to ultra-easy
monetary policy.
Precious metal miner Fresnillo Plc slumped 13.0%
after it forecast lower gold output for the current year.
French luxury group LVMH slipped 0.3% even as
booming sales at fashion brands like Louis Vuitton, particularly
in China, helped to cushion the impact of the pandemic.
Danish medical device maker Ambu surged 23.6%
after upbeat quarterly results, while German health technology
company Siemens Healthineers gained 3.1% after it
raised its 2021 outlook for sales and earnings.
Echoing the retail trading fever that has gripped Wall
Street, drugmaker Evotec jumped 9.6% with other
heavily shorted stocks like British publisher Pearson
and cinema chain Cineworld soaring without any clear
reason.
"Certainly if you look at some of the biggest movers in
Europe, they are stocks that hedge funds have been shorting,"
Mirabaud Securities' Neil Campling said.
"It is difficult to know how exactly this will play out, but
obviously with the volatility that we're seeing in individual
stocks, it is very dangerous."
(Reporting by Sruthi Shankar in Bengaluru; Editing by Arun
Koyyur and Mark Heinrich)
Pearson (PSON)
Fresnillo (FRES)
