By Bansari Mayur Kamdar and Shreyashi Sanyal
(Reuters) -European shares fell on Tuesday for the first time in three sessions in a broad-based retreat, with some declines being offset after commentary from U.S. Federal Reserve Chair Jerome Powell and gains in shares of German drugmaker Bayer.
The pan-European STOXX 600 closed 0.6% lower, after hitting its highest level in eight months in the previous session.
"European markets have spent most of the day on the back foot with some profit taking kicking in after what has been a strong start to the year," said Michael Hewson, chief market analyst at CMC Markets.
After a rough 2022, Europe's STOXX 600 has risen nearly 5% since the start of this year on growing hopes the recession in the euro zone will be milder than expected and central banks will ease their aggressive monetary policy stance.
Goldman Sachs said it no longer expects a contraction in the euro zone economy this year.
Helping ease some declines was a 4.1% jump in shares of Bayer, which predicted its experimental drug against dangerous blood clots could make more than 5 billion euros ($5.4 billion) in peak annual sales.
Fed Chair Powell's speech steered clear of monetary policy and instead addressed issues like climate change, which came as a relief to investors.
"This lack of comment on monetary policy matters has helped lift markets in early trade thus shifting the narrative to the CPI numbers which are due to drop on Thursday," Hewson said.
Market participants will shift focus to the U.S. Labor Department's consumer prices report on Thursday, expected to show some moderation in year-on-year inflation in December.
"We have the inflation report due on Thursday that investors know if we see a soft or soft enough figure, the market could absolutely continue going against the Fed," said Ipek Ozkardeskaya, senior market analyst at Swissquote bank.
UK's export-heavy FTSE 100 slipped 0.4%.
Britain announced plans on Monday to scale back energy subsidies to businesses by about 85% next financial year after the government described the current level as "unsustainably expensive".
Euronav dropped 17.7% after Oslo-listed rival Frontline said it had terminated a $4.2-billion deal to merge with the Belgian oil tanker operator.
German utility Uniper slid 1.5% after the firm said its chief executive and chief operating officer will resign from the management board this year after the German government took a major control.
(Reporting by Bansari Mayur Kamdar and Shreyashi Sanyal in Bengaluru; Editing by Uttaresh.V, Dhanya Ann Thoppil and Chris Reese)