European stock markets slid on Wednesday and the euro fell against the dollar in the wake of US President Barack Obama's convincing re-election win that was nonetheless expected to be challenged quickly by a looming US fiscal crisis.
After rising initially as traders cheered an end to US political uncertainty, equities and the European single currency headed south as investors' attention switched to the challenging .
In early afternoon deals, London's FTSE 100 index of top companies was down 0.92 percent at 5,830.77 points, Frankfurt's DAX 30 retreated 1.49 percent to 7,267.56 points and in Paris the CAC 40 shed 1.68 percent to 3,420.25.
In New York, US stock markets tumbled on expectations that Obama's re-election will set up a tough battle with Republicans over the much discussed "fiscal cliff".
Automatic US tax and spending measures totalling about $600 billion are scheduled for January 1 to curb a swollen US public deficit and debt if a compromise on graduated measures cannot be agreed between Obama and the US Congress.
In the first half hour of trade, the Dow Jones Industrial Average dropped 1.49 percent, the broad-based S&P 500 fell 1.44 percent and the Nasdaq Composite shed 1.31 percent.
Berenberg Bank economists Holger Schmieding and Rob Rood pointed to likely control by the Republican party of the US House of Representatives, noting that "continuing gridlock in Congress, as projected by the current incomplete results, are no surprise.
"But the election outcome will make it difficult to forge the required bipartisan compromises ahead of the looming fiscal cliff at the end of 2012," they said.
Obama also has to produce a long-term plan to deal with the US fiscal deficit, which the International Monetary Funds forecasts will reach 8.7 percent of output in 2013, the Berenberg economists added.
"If no action is taken in the next two months, automatic tax hikes and spending cuts will tighten the fiscal position by a huge 5.1 percent of GDP at the beginning of 2013. "Without a compromise, the US will be heading for recession," they warned.
Meanwhile, analysts expected Obama's victory to spell status quo for the Federal Reserves relaxed monetary policy.
At SHK Financial, strategist Daniel So told Dow Jones Newswires: "An Obama victory ensures the continuity of the US monetary policy, which is likely to be kept loose."
After a brief rise versus the US currency, the euro was down at $1.2756 in London afternoon deals, compared with $1.2814 late in New York on Tuesday.
The European single currency reversed direction as the European Commission slashed its eurozone economic growth forecast for next year to just 0.1 percent, six months after tipping a much stronger recovery of 1.0 percent.
Official data meanwhile revealed slumps in German and Spanish industrial output during September.
In Greece, lawmakers were to vote Wednesday on austerity measures needed to unlock international aid and stave off bankruptcy despite strikes and public anger against billions more euros in tax hikes and pension cuts.
The package includes 18.5 billion euros ($23.6 billion) in new spending cuts and other reforms by 2016.
Looking at corporate stocks, Munich Re shares won 0.39 percent to 128.10 euros in Frankfurt deals after the world's biggest reinsurer said it was raising its full-year profit forecast, despite the expected claims losses from superstorm Sandy that battered the United States last week.
"The result for the first three quarters is more than pleasing. Despite Hurricane Sandy, we are very optimistic of realising a profit in the region of 3.0 billion euros for 2012," said chief financial officer Joerg Schneider.
At the beginning of the year, Munich Re had envisaged a full-year profit of around 2.5 billion euros.
French bank BNP Paribas saw its share price jump 2.13 percent to 39.95 euros after the company more than doubled its net profit in the third quarter.
In London, Pearson shares slipped by 0.16 percent to 1,238 pence, a day after the publisher denied that it was planning to sell the Financial Times newspaper following media speculation.
Asian stock markets closed mixed on Wednesday, while on the London Bullion Market, gold prices jumped to $1,730.50 an ounce from $1,691 on Tuesday.