London - European stocks fell as declining investor morale hit Germany's benchmark DAX equity index and worries over Portugal's Banco Espirito Santo weakened the Lisbon market.
The declines on the DAX and Lisbon's PSI-20 equity index contributed to a retreat by the region's stock markets on Tuesday from the multi-year highs they reached in late June.
The DAX fell 0.3% to 9 751 points, down from its record high of 10 050.98 points in late June. The ZEW survey on Tuesday showed that German analyst and investor morale dropped in July for a seventh straight month, to its lowest level since December 2012.
The Lisbon stock market was also hit by a slide in the share prices of Banco Espirito Santo and Portugal Telecom.
Portugal Telecom fell after reports that Rioforte, a holding company of Portugal's Espirito Santo family, is preparing to file for protection from its creditors.
That came hours before Rioforte was due to repay over $1bn in debt to Portugal Telecom. Rioforte also owns a 49% stake in the company that is the largest shareholder in BES. Rioforte declined to comment.
Francois Savary, a chief investment officer at Swiss bank Reyl, said that while he did not see any bigger, systemic problems from the situation at BES, it nevertheless highlighted the fragile nature of southern European economies such as Portugal, Spain and Italy.
"BES is not systemic but Italy, Spain and Portugal remain countries with economic problems," he said.
Buy on dip mentality persists
The pan-European FTSEurofirst 300 index was down by 0.1% at 1 363 points. The euro zone's blue-chip Euro STOXX 50 index fell 0.5% to 3 169 points.
Savary expected the Euro Stoxx to be stuck in a range from 3 050 to 3 250 points in the near-term, but said he would look to buy equities when the market fell, on expectations of a stock market rally later in 2014.
Many investors remain optimistic about European equities for the longer term, considering the steps taken by the European Central Bank to stimulate the region's economy. The ECB cut interest rates to a record low last month.
"I believe the mentality is still to buy the dip," said Savary.
Darren Courtney-Cook, head of trading at Central Markets Investment Management, said he would look to "short" - or bet on future falls - the DAX at the 9 750-point level but remained optimistic on the DAX on a longer-term perspective.
"I'd still be bullish, even if the DAX fell to 9 400 points," said Courtney-Cook.