European stocks dropped by the most in three weeks as a report showed German manufacturing unexpectedly contracted this month, while Cyprus’s President worked on a new plan to obtain a bailout from the euro area.

A purchasing managers’ index for Germany’s manufacturing industry unexpectedly fell to 48.9 this month. The median economist forecast had called for a reading of 50.5. A separate report showed that manufacturing in France contracted more than estimated.

Cyprus’s President, Nicos Anastasiades, met advisers to draft a new plan to avoid financial collapse after lawmakers rejected the euro area’s proposed levy on bank deposits.

The alternative plan may include a new version of the deposit tax, said an official who asked not to be identified citing government policy. The central bank declared that lenders will remain shut for another two days, effectively preventing Cypriots from accessing their accounts until March 26.

The European Central Bank said it will withdraw Cypriot banks’ access to emergency funds on March 26 if the government fails to agree to a bailout from the European Union and the International Monetary Fund.

National benchmark index fell in all 18 western-European markets. France’s CAC 40 slid 1.4 percent, while the U.K.’s FTSE 100 lost 0.7 percent. Germany’s DAX declined 0.9 percent.

Lanxess slumped 6 percent to 58.31 euros after predicting that Ebitda will drop to as little as 160 million euros ($207 million) in the current quarter. The chemical maker said it has budgeted for declining profit in 2013.

SAP dropped 2.1 percent to 62.96 euros after Oracle Corp. reported sales and profit that missed analysts’ estimates. The U.S. enterprise software maker said its corporate customers reduced their spending on software. Cap Gemini SA, France’s biggest computer-services company, slid 3.9 percent to 36.97 euros.

A gauge of European carmakers posted the worst performance of the 19 industry groups in the Stoxx 600, with Renault SA slipping 5.1 percent to 51.04 euros and Daimler AG retreating 2.2 percent to 43.96 euros.