European Stocks Dip

European stocks finished lower, as concerns about the fiscal situation in Spain and Italy rattled markets. Economic data from both sides of the Atlantic also damped sentiment.

The Stoxx Europe 600 index ended down 1.1%, at 264.29. The U.K.'s FTSE 100 index fell 0.6%, to 5838.34, and Germany's DAX index shed 1%, to 6982.28, while France's CAC-40 index finished down 1.6%, to 3406.78. Spain's IBEX 35 lost 2.7% and Italy's FTSE MIB index slipped 2%.

Tuesday's weakness was driven by worries about Spain after the country's budget minister, Cristobal Montoro, said government debt will rise by more than 10 percentage points this year to almost 80% of gross domestic product, as debt-servicing costs will reach their highest level since the euro was launched.

At the same time, worries about Italy continued to simmer. The Italian Treasury said late Monday that the state sector's cash budget declined by €3 billion, to €28.2 billion, in the first quarter, a 10% reduction. Last week, business lobby group Confindustria said the country's economy is likely to shrink 1% in the first quarter from the last three months of 2011.

Banking stocks declined, with the Stoxx Europe 600 banks index closing down 2.4%. Spanish and Italian banks fell sharply, with Banco Santander down 3.9% in Madrid and Banco Bilbao Vizcaya Argentaria off 4.5%. In Milan, Intesa Sanpaolo fell 4.7% and UniCredit shed 5%.

Earlier, data showed prices charged by euro-zone factories for their goods rose in February at the slowest rate in a year and a half, suggesting inflationary pressures are easing in the 17-nation currency bloc. Industrial producer prices rose 0.6% in February from January and 3.6% year to year. The annual rate was down from 3.8% in January, marking its lowest level since June 2010.

Morgan Stanley analysts said that many of the factors that have been providing support to investor optimism since the beginning of the year are now set to be challenged. "Indeed, many of the leading economic indicators which have arguably been major driving forces behind the risk recovery are now showing signs of stalling," the analysts said.

In the U.S., stocks retreated from multiyear highs after a reading on domestic factory orders was slightly under forecasts. The Dow Jones Industrial Average fell 65 points, or 0.5%, to 13199, in midday Tuesday trading. The Dow closed on Monday at its highest level since December 2007.

In the foreign-exchange market, the euro rose to $1.3341 from $1.3318 late Monday in New York. Among commodities, light, sweet crude oil for April delivery was off 51 cents, at $104.72 a barrel, on the New York Mercantile Exchange. Gold for April delivery was down $5, at $1,674.70 a troy ounce on the Comex division of Nymex.

Asian bourses were mostly higher on the back of Monday's gains in U.S. stocks. Hong Kong's Hang Seng Index rose 1.3%, snapping a four-session losing streak.

British Sky Broadcasting Group fell 0.8%, after it said James Murdoch had stepped down as chairman, but would continue to be a nonexecutive director of the pay-TV broadcaster.

Roche Holdings slipped 0.4% after the board of Illumina rejected a sweetened takeover offer from the Swiss drug maker.

Write to Ishaq Siddiqi at ishaq.siddiqi@dowjones.com