European stock markets have fallen sharply as investors fled high-growth stocks in favour of industrial shares.

The markets took their cue from Wall Street, where information technology and other growth stocks had taken a battering. The Nasdaq fell more than 5 per cent, after the close of European markets on Monday, but recovered to end up 64.03 points, on 2,409.64. closed .

The UK's FTSE 100 was one of the hardest hit, falling 3 per cent to close at 6,319.8. In Dublin, the ISEQ index lost 1.3 per cent, with all the main financial stocks losing ground.

Frankfurt's DAX fell 2.87 per cent to end at 5,101.4, while France's CAC-40 dropped 2.88 per cent to close at 4,253.27. Analysts said the "rotation" from growth to cyclical stocks had been boosted by a growing view that the global economy would recover in 1999.

The European Central Bank's decision to cut Europe's interest rate to 2.5 per cent earlier this month and signs of economic recovery in Asia have reinforced this assessment.

Cyclical stocks, such as hotels and manufacturing, have dramatically underperformed the market in Europe during the past two years.

In contrast, the information technology and telecoms sectors have been trading at record valuations.

The largest blue-chip growth stocks, such as Alcatel in France and Reuters, the UK news and information provider, fell 7.25 per cent and 7.5 per cent respectively. By contrast, the price of cyclical stocks, such as Lafarge, the French building materials company, and Imperial Chemical Industries, closed higher.

On currency markets, meanwhile, the euro has strengthened a little as traders took profits form recent US dollar purchases.

The currency had fallen as low as $1.0580 very early yesterday but recovered to close at $1.0665 from $1.0605 a day earlier and to 65.95p against sterling from 65.87p on Monday. As a result the pound closed at 83.75p against sterling from 83.64p.