European shares fell on Thursday as a surge in new coronavirus cases in China blindsided investors, with food giant Nestle weighing the most after it postponed its 2020 growth target.

The pan-European STOXX 600 index fell 0.5 per cent by 0900 GMT. It had notched new highs in the last two sessions on optimism over what appeared to be a decline in new cases of infection, as well as a slow restart in factory activity after an extended break in China.

But a jump in new cases after China deployed a new diagnostic method and a record rise in the death toll dashed hopes that the epidemic was slowing and swiftly subdued risk appetite.

“We shaved off a couple of percentage points from the Q1 GDP in China,” said Simona Gambarini, markets economist at Capital Economics in London.

“If the virus is brought under control, this will be temporary and would be offset in the second half of the year.”

Auto sales in China are likely to have fallen 18 per cent in January, their 19th straight month of decline, with the virus outbreak further hurting demand.

Meanwhile, Nestle SA, the biggest firm on the STOXX 600 by market capitalization, dropped 2.1 per cent after it pushed back its 2020 growth target to over the next two years.

European sectors with heavy exposure to China, such as basic resources and automobile stocks, fell 1.4 per cent and 1.2 per cent, respectively.

The European industrial, real estate and healthcare sectors benefited from some defensive buying, with the sub-indexes trading slightly below record highs.

Among individual movers, British utility Centrica PLC plunged to the bottom of the STOXX 600 after it posted a 35 per cent slump in its annual profit.

French electrical parts maker Rexel SA topped the index after clocking a 20 per cent jump in its 2019 net income.

Meanwhile, analysts are expecting a 0.6 per cent decline in fourth-quarter European corporate earnings, Refinitiv data showed, with most sectors still reeling from the impact of the US-China trade war.

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