European stocks slide on central bank stimulus fear

European stocks fell sharply on Tuesday as investors grew increasingly concerned key central banks would step back from stimulus efforts that have been helping boost markets all year.

Sentiment turned sour off early losses in Asia, after the Bank of Japan, which has helped spark price rallies worldwide with its hugely accommodative policies, stayed quiet on any new stimulus measures.

"The Bank of Japan slightly surprised investors this morning when it omitted to do or say anything to calm the volatility that has been a recent feature of Tokyo bond and equity markets," said a note from analysts at Moneycorp. analyst Patrick O'Hare added: "Central banks around the world are struggling with their communication as they attempt to manage market expectations about their extraordinary support measures."

In afternoon deals, London's FTSE 100 index of leading shares dived 1.56 percent to 6,300.88 points.

In Paris the CAC 40 index sank 2.01 percent to 3,786.51 points and Frankfurt's DAX 30 shed 1.47 percent to stand at 8,185.78 points.

US stocks also dropped sharply in opening trade Tuesday, with the Dow Jones Industrial Average slumping 0.92 percent, the broad-based S&P 500 off 1.11 percent and the tech-rich Nasdaq Composite Index diving 1.21 percent.

Traders also eyed a key German court hearing on the legality of the European Central Bank's bond-purchasing programme which has calmed financial markets since its launch last summer.

Germany's highest tribunal, the Constitutional Court, began two days of hearings on Tuesday to decide whether the ECB's controversial OMT bond purchase programme is compatible with Germany's Basic Law.

Bundesbank president Jens Weidmann -- one of the most vocal critics of the Outright Monetary Transactions -- is scheduled to take the stand alongside ECB executive board member Joerg Asmussen.

"Undeniably (OMT) has helped to calm down the financial markets and its main purpose is to preserve common currency not to help out any country out of insolvency. The ruling though is not expected until after the German elections in September," said trader Anita Paluch at Gekko Markets.

Ever since the ECB unveiled the OMT to buy up the sovereign debt of the euro area's most debt-wracked members last August, fears of a break-up of the single currency have receded.

Europe's battered financial markets have enjoyed a period of relative calm, without a single OMT ever being carried out.

Nevertheless, some critics argue that the OMT oversteps the ECB's mandate and is therefore unconstitutional.

In foreign exchange deals, the European single currency slipped to $1.3234 from $1.3258 late in New York on Monday.

The dollar dipped to 97.18 yen from 98.71 yen on Monday.

Asian markets mostly fell on Tuesday following the previous day's rally, with Tokyo tumbling more than two percent at one point.

Dealers were left disappointed by the lack of news from the BoJ, with Tokyo's Nikkei, which surged almost five percent Monday on upbeat US jobs news, ending down 1.45 percent.

Seoul fell 0.62 percent and Hong Kong was off 1.20 percent, while Sydney added 0.41 percent. Shanghai was closed for a public holiday.

In trading on the London Bullion Market on Tuesday, the price of gold fell to $1,369.5 an ounce from $1,383.25 on Monday.