European shares subdued as strong U.S. jobs data deepens Fed's rate hike angst

By Ankika Biswas and Amruta Khandekar

(Reuters) -European shares were muted on Wednesday as better-than-expected employment data from the U.S. fanned worries over Federal Reserve Chair Jerome Powell's hawkish rhetoric on interest rates, while investors also assessed the euro zone's fourth-quarter growth numbers.

However, the pan-European STOXX 600 index closed 0.1% higher, after hitting its lowest level in a week, likely helped by Powell's latest comments that the Fed had not decided on the size of this month's rate hike.

Basic resources and technology stocks were the top gainers, while real-estate bore the brunt of selling pressure.

"It feels as though perhaps some of the selling was a bit overdone," said Victoria Scholar, head of investment at Interactive Investor.

U.S. private payrolls increased more than expected in February and job openings fell less than expected in January with data for the prior month revised higher, pointing to continued labour market strength.

"The strong US labour market could potentially pave the way for a stronger non-farm payroll report on Friday, which could boost expectations for a more aggressive 50 basis point move from the Fed," Scholar added.

This comes a day after Powell, in a hearing before the Senate Banking Committee, said that the Fed might need to raise rates more than expected, pushing the benchmark STOXX 600 to post its steepest one-day decline in nearly two weeks.

Back home, the European statistics agency said that the euro zone failed to register any growth quarter-on-quarter in the final three months of 2022, while slightly revising down both its GDP and employment growth numbers.

Meanwhile, European Central Bank governing council member Ignazio Visco criticized some fellow policymakers for recent comments on future interest rates that diverged from what had been agreed at the central bank's meetings.

The ECB is scheduled to hold its monetary policy meeting next week.

Among major movers, Andritz gained 6.8% after the Austrian engineering group reported better-than-expected full-year results.

Helping Germany's DAX index outperform its peers was a 7.6% jump in Continental's shares after the auto supplier forecast higher margins this year.

German industrial production rose significantly more than expected in January.

Thales fell 3.6% after the French defence electronics company projected 2023 free-cash-flow below estimates, while Fuchs Petrolub lost 4.9% on a downbeat 2023 profit forecast.

Of the 238 companies in the STOXX 600 that have reported fourth-quarter earnings to date, over half have topped estimates, according to Refinitiv data, helping the index gain 8.5% so far this year.

(Reporting by Amruta Khandekar and Ankika Biswas in BengaluruEditing by Subhranshu Sahu, Vinay Dwivedi and Toby Chopra)