By Danilo Masoni and Helen Reid
MILAN/LONDON (Reuters) - European shares hit their lowest in more than 21 months on Thursday following a slide on Wall Street as jitters over rising U.S. Treasury yields and signs of slowing global growth prompted broad selling of risky assets.
All sectors in Europe fell, though tech recovered some losses thanks to M&A hopes. The big U.S. technology stocks that have been the engine behind a multi-year bull market posted heavy losses overnight but clawed back some losses on Thursday.
The euro zone's STOXX (.STOXXE) index extended losses during the day to close down 1.7 percent, while Britain's FTSE 100 (.FTSE) fell 1.9 percent.
The pan-European STOXX 600 (.STOXX) benchmark index was down 2 percent to its lowest level since the end of December 2016, suffering its worst day since June 25. It has lost 4.5 percent so far this week.
Even though Wall Street had its biggest drop in eight months on Wednesday, triggering a global equity sell-off, the S&P 500 (.SPX) remains up 3.2 percent so far this year, while euro zone stocks have lost 8 percent.
European stocks have been penalised by political turmoil and the region's vulnerability to trade risks, while tax cuts, share buybacks and a booming economy have boosted U.S. stocks.
"The gap between the performance of U.S. and Eurozone equities is no coincidence," said Patrick Moonen, multi-asset strategist at Dutch asset manager NN Investment Partners.
"We think that for this picture to turn around in favour of Europe we need to see a gradual rise in bond yields (providing support to financials) accompanied by signs the economy is not slowing and lower political risks," he added.
While Wall Street staged a partial recovery on Thursday, it did not pull Europe up in its wake, with some analysts saying European stocks were still catching up with the fall in the United States.
European stocks have also been hit recently by worries over their exposure to China and other emerging markets.
On Thursday market stress drove the volatility gauge for euro zone stocks (.V2TX) to its highest level since May 28.
Europe's tech index (.SX8P) fell just 1 percent, thanks to a 7.6 percent rally in Ingenico (INGC.PA) after Natixis (CNAT.PA) said it was examining a merger of its payments activities with the financial and payments firm.
M&A hopes also boosted shares in Pandora (PNDORA.CO) which rose 6.7 percent with traders citing rumours the company is seeking advisers to fend off a possible acquisition bid.
Defensive sectors such as healthcare, telecoms and real estate outperformed the broader market, as investors sought to limit the damage by turning to stocks that are attractively valued and less exposed to slowdown in global growth.
Among the biggest sectoral fallers were oil stocks (.SXEP), down 3.1 percent as oil slumped to two-week lows amid the general anxiety on growth, which also took financial stocks down.
Banks (.SX7P) fell 2.4 percent, financial services (.SXFP) tumbled 2.9 percent and insurers (.SXIP) lost 3.1 percent.
Bayer (BAYGn.DE) was an outlier, rising 3.1 percent after its Monsanto unit received a tentative ruling for a new trial on $250 million in punitive damages in a U.S. weed-killer case.
Gold miners Randgold Resources (RRS.L) and Fresnillo (FRES.L) also shone as safe haven buying drove gold prices up to near three-week highs.
(Reporting by Danilo Masoni and Helen Reid; Editing by Andrew Heavens)