European stocks slide as investors eye German court

European stocks fell sharply on Tuesday as investors 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.

Sentiment was also hit by earlier losses in Asia, after the Bank of Japan did not announce any new stimulus measures.

"There weren't any surprises from the Bank of Japan as the central bank kept policy unchanged," said analyst Michael Hewson at traders CMC Markets.

"Investors in Europe are likely to be more interested in the start of the long awaited two day hearing of the German constitutional court in Karlsruhe into the legality of the ECB's so-called big bazooka, the OMT program."

In late morning deals, London's FTSE 100 index of leading shares dived 1.28 percent to 6,318.72 points.

In Paris the CAC 40 index sank 1.36 percent to 3,811.81 points and Frankfurt's DAX 30 shed 1.63 percent to stand at 8,172.71.

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.

"In the absence of any major macroeconomic data release the focus (for investors) will be on the Germany's Constitutional Court two-day hearing into the legality of the ECB's bond buying program," said trader Anita Paluch at Gekko Markets.

She added: "Undeniably ... it 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."

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 firmed to $1.3284 from $1.3258 late in New York on Monday.

The dollar dipped to 97.26 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, while Wall Street's lead was anaemic despite news that Standard & Poor's had upgraded its debt rating outlook on the United States.

Tokyo's Nikkei, which surged almost five percent Monday on upbeat US jobs news, ended 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.

"With China on holiday and the excitement of last week's employment numbers over, there is little of interest for investors and market moves and volumes are pretty subdued," said Rebecca O'Keeffe, head of investment at broker Interactive Investor.

In trading on the London Bullion Market on Tuesday, the price of gold fell to $1,368.7 an ounce from $1,383.25 on Monday.