Economic motor stalled, European stocks ease

NEW YORK (CNNMoney) -- Stocks in Europe recovered late Tuesday after falling sharply on a report from the European Union that showed a broad slowdown in economic activity.

Investors were awaiting a statement from French President Nicolas Sarkozy and German Chancellor Angela Merkel on economic issues.

After falling nearly 3%, the benchmark German stock index was down about 0.7% in late day trading. The CAC 40 in Paris lost 0.4% and London's FTSE 100 slid 0.7%.

European markets came under pressure after Eurostat, the EU statistics agency, said gross domestic product for the 27 members of the European Union rose 0.2% in the second quarter.

The expansion was smaller than many economists had expected, and marked a slowdown from the 0.8% rate reported in the first quarter.

Germany, the largest EU economy, expanded by only 0.1% in the quarter. That was down from 1.3% in the first quarter and came after France, the second largest EU economy, reported last week that growth stalled in the quarter.

"The GDP numbers were obviously very disappointing," said Will Hedden, a trader at IG Markets in London, adding that the weak performance by France and Germany was particularly troubling. "It's very worrying to see big, seemingly safe countries that are not growing as much as they should be," he said.

German and French banks were among the hardest hit. Shares of Commerzbank and Deutsche Bank both slumped more than 2% in afternoon trading in Frankfurt.

In France, Société Générale lost over 1%, while Credit Agricole was also weak.

The Ishares MCSI Europe Financials Sector Index Fund (EUFN), an exchange traded fund that tracks shares European banks, fell 2.2%.

Shares of several ETFs that U.S. investors use to gain exposure European stocks were lower across the board.

The Ishares MSCI ETFs for Germany (EWG), France, (EWQ) Spain (EWP) and Italy (EWI) were all between 2% and 3% lower.

The slowdown in Europe is consistent with a broader decline in global economic activity. But it comes a time when many are looking to France and Germany to provide additional support for troubled EU members, including Greece, Portugal and Ireland.

The selling came as French President Nicolas Sarkozy and German Chancellor Angela Merkel met in Paris to discuss, among other things, proposals to help stabilize the euro.

Hedden said investors are hoping the meeting will provide some reassurance that political leaders in Europe are on the same page.

"There's a lot of fear over the lack of political unity in the euro zone," he said. "That's what we're looking for in today's meeting: some sense of a unified approach."