Feb. 27 (Bloomberg) -- European shares slumped the most in 3 1/2 years after a plunge in the Chinese stock market rattled investor confidence and sparked a global slide in equities.

BHP Billiton, Rio Tinto Group and Standard Chartered Plc paced a drop by companies that generate a high proportion of sales in China amid concern the government will tighten controls on investment in the world's fastest-growing major economy.

The market drop is ``purely from the sell-off in China,'' said James Buckley, a London-based director at Baring Asset Management, which oversees about $37 billion. ``Mining stocks are always the most vulnerable to any momentum or profit-taking particularly when it originates out of Asia.''

The Dow Jones Stoxx 600 Index dropped 3 percent to 370.56 in London, the steepest decline since May, 2003 with all but four of its members falling. The Stoxx 50 retreated 2.6 percent while the Euro Stoxx 50, a measure for the 13 nations sharing the euro, lost 2.7 percent.

China's stocks tumbled 9.2 percent, the most in a decade, on concern the government will crack down on illegal investments that helped drive benchmarks to records. Today's rout wiped out $107.8 billion from a stock market that doubled in the past year.

``We're still in favor of emerging markets but advised clients a few weeks ago to be more cautious on China,'' said Guillaume Duchesne, an equity strategist at Fortis Private Banking in Luxembourg, which manages $76 billion. ``Today, this is being confirmed.''

Clamp Down

Repsol YPF SA, the region's fifth-largest oil company, slipped after earnings fell. Volvo AB dropped as it agreed to buy the road-development unit of Ingersoll-Rand Co.

The State Council, China's highest ruling body, has approved a special task force to clamp down on illegal share offerings and other banned activities in the market, the government said. China's stock market capitalization, $1.16 trillion as of yesterday, is about 2 percent of the global total, according to data compiled by Bloomberg.

Benchmarks extended declines after a government report showed orders placed with U.S. factories for durable goods fell more than forecast in January.

National benchmarks slid in all 18 western European markets. France's CAC 40 dropped 3 percent while the U.K.'s FTSE lost 2.3 percent. Germany's DAX slid 3 percent.

BHP, the world's largest mining company, lost 6.2 percent to 1,051 pence. China is the company's second-biggest market after Europe. Rio Tinto, the third biggest, declined 4.8 percent to 2,799 pence. Xstrata Plc, the world's fourth-biggest nickel producer, dropped 6.7 percent to 2,479 pence.

Thirst for Metals

Mining shares in the Stoxx 600 had risen to a record-high this week as investors bet rising demand from China and India for industrial metals would boost earnings. China is the world's biggest user of metals such as copper. The Dow Jones Stoxx 600 Basic Resources Index dropped 5.5 percent today.

The slide in China ``comes after a considerable rise and it's a drop from the highest point in history,'' said Thierry Lacraz, a private-banking investment adviser with Pictet & Cie. in Geneva. ``It doesn't represent a threat for global markets.''

Standard Chartered, a U.K. bank that makes most of its money in Asia, retreated 3.9 percent to 1,450 pence. The lender may not repeat last year's profit gain in the first half of 2007 as costs rise faster than revenue.

``The concern is the cost growth, which seems to have overshot due to the company's aggressive investment,'' said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers in London. Standard Chartered has spent more than $5 billion on Asian takeovers since 2005.

Repsol, Volvo

Repsol slipped 2.6 percent to 24.54 euros. The company said fourth-quarter profit fell 14 percent to 473 million euros ($622.7 million) as production declined and refining margins narrowed. Analysts had expected profit of 611 million euros, according to a Bloomberg survey.

Volvo, Europe's second-biggest truckmaker, slipped 4 percent to 555 kronor after it agreed to buy the road-development unit of Ingersoll-Rand Co. for $1.3 billion in cash in an effort to capture part of the growing market for construction equipment.

Henkel KGaA lost 5.8 percent to 108.8 euros. The German maker of Persil detergent maintained its forecast for slower sales growth this year.

The company plans to split its stock to make the shares more attractive to private investors. Henkel plans to issue three preferred shares for each existing share.

``Investors seemed ready to take the first excuse for a correction'' in the market, said Gianluca Verzelli, chief investment officer of BNP Paribas Private Banking in Milan, which manages the equivalent of $2.7 billion. ``That is even more the case with something unexpected like today's news from China.''

Increased Costs

Fomento de Construcciones & Contratas SA, Spain's third- biggest builder, retreated 5.5 percent to 78.95 euros. The company posted a 3.1 percent drop in fourth-quarter profit to 133.9 million euros as debt costs increased.

GKN Plc, a U.K. maker of car and airplane parts, rallied 9.4 percent to 351 pence, the best performer on the Stoxx 600. The company said full-year profit more than tripled to 177 million pounds ($347 million) after it sold more plane components and reduced spending on reorganization.

Reuters Group Plc added 1.4 percent to 432 pence. Credit Suisse Group raised its recommendation on the world's largest publicly traded provider of financial data to ``outperform'' from ``neutral.'' The bank says a profit warning is unlikely and that it expects solid full-year results.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net; Ludwig Burger in Zurich at lburger2@bloomberg.net

Last Updated: February 27, 2007 12:04 EST