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European shares lose steam on caution ahead of Fed move

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

By Shreyashi Sanyal and Ankika Biswas

(Reuters) -European shares gave up early gains and closed lower on Wednesday as investors exercised some caution ahead of the U.S. Federal Reserve's interest rate hike decision later in the day.

The pan-European STOXX 600 index slipped 0.3% to snap a three-day winning run that took it to near seven-week highs.

Wall Street's main indexes also slipped after a bigger-than-expected increase in October private payrolls offered more evidence of labour market resilience, suggesting that the Fed could stick to its aggressive rate hikes for a while. [.N]

The U.S. central bank is widely expected to hike its benchmark lending rates by 75 basis points for the fourth time in a row at 2 p.m. ET (1800 GMT), with some pricing in a smaller 50 bps rate hike in December. [FEDWATCH]

"The Fed is expected to bring in another super-sized rate hike of 0.75%, but that has been priced in. Instead it is the words that Chair Jerome Powell chooses to use, about the economic outlook and what the future may hold, that will be in focus," said Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown.

"There are high hopes that he will signal that there could be some softening in the U.S. central bank's aggressive approach to taming inflation."

Personal & household goods, miners and technology sectors in Europe were among the worst hit, down between 1.3% and 1.8%.

Bucking the trend was the healthcare sector, boosted by a 7.4% jump in Novo Nordisk after it raised its full-year earnings outlook.

The STOXX 600 posted solid gains last month as a better-than-expected earnings season eased some worries about the euro zone slipping into a recession as the European Central Bank (ECB) promised more monetary policy tightening.

The ECB's deposit rate is seen peaking at just below 2.9% in 2023 compared with 1.5% at present, as the central bank scrambles to fight record-high inflation in the single currency bloc.

Data showed the decline in euro zone manufacturing activity was sharper than initially estimated last month, indicating that the sector is in recession.

Among other stocks, Maersk slid 5.8% as the Danish shipping group warned of slowing demand for transport and logistics and cut its forecast for container demand this year.

Danish hearing aid maker Demant tumbled 15.1% to the bottom of the STOXX 600, after it cut its full-year revenue and profit guidance for the second time in the year.

(Reporting by Shreyashi Sanyal and Ankika Biswas in Bengaluru; Editing by Subhranshu Sahu, William Maclean)