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European shares post biggest weekly fall of 2023 as rate hike fears return

German share price index DAX graph is pictured at the stock exchange in Frankfurt

By Shreyashi Sanyal and Bansari Mayur Kamdar

(Reuters) - European shares slid on Friday to end the week lower as a slew of U.S. economic data fed into fears that central banks are far from finished hiking rates.

The STOXX 600 index fell 1.0%, reversing early gains, after U.S. inflation data came in hotter than expected and added to worries that the Federal Reserve might have to keep interest rates higher for longer in the world's largest economy.

"The Fed has much more work to do, and even if they only raise rates a couple more times, it is extremely unlikely that they will be cutting rates this year – as was consensus and in market-based pricing as recently as a few weeks ago," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

Euro zone government bond yields rebounded to around their highest levels in more than a decade, while trader forecasts for the peak in European interest rates rose again to around 3.8% after the U.S. data.

The pan-European index ended the week 1.4% lower, with mining stocks leading declines as metal prices eased on lacklustre demand in top consumer China and a stronger dollar.

Most European sectors end the week on a sour note, miners lead losses

Data earlier in the day from Germany showed Europe's biggest economy contracted in the fourth quarter of 2022 as inflation and an energy crisis took a toll on household consumption and capital investment.

Still, a GfK institute survey signalled that German consumer sentiment is set to improve for a fifth consecutive month in March as energy prices drop.

"Every day, there seems to be just enough contradictory economic data to keep us all guessing about exactly which box those central bankers will check when it comes to their next rates meeting," said Danni Hewson, head of financial analysis at AJ Bell.

In earnings-driven news, Compagnie de Saint-Gobain gained 4.8% after the construction materials company posted record annual revenue that exceeded analysts' expectations on strong growth in all its regions on Thursday.

Radiation therapy equipment Elekta jumped 9.2% to the top of the STOXX 600 after its third-quarter earnings beat expectations.

German chemicals giant BASF SE fell 7.9% as it flagged a decline in annual earnings and said it plans to cut 2,600 jobs and halt buybacks.

Travel & leisure stocks slid 3.0%, dragged down by British Airways-owner IAG.

IAG agreed to pay 400 million euros ($423.84 million) to Spain's Globalia for the remaining 80% of Spain-based Air Europa it did not already own, and predicted its first annual profit since the pandemic. Its shares fell 6.5%.

(Reporting by Shreyashi Sanyal and Bansari Mayur Kamdar in Bengaluru; Editing by Sherry Jacob-Phillips, William Maclean)