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European stock rally halts as coronavirus restrictions weigh

Sruthi Shankar and Shashank Nayar
·2-min read
The German share price index DAX graph at the stock exchange in Frankfurt
The German share price index DAX graph at the stock exchange in Frankfurt

By Sruthi Shankar and Shashank Nayar

(Reuters) - European stocks slipped from eight-month highs on Tuesday, as tighter coronavirus restrictions across the continent raised doubts about a swift economic rebound and countered optimism about a COVID-19 vaccine.

The pan-European STOXX 600 <.STOXX> ended 0.2% lower. The index jumped over 1% to close at its highest level since late February on Monday following positive data about drugmaker Moderna's <MRNA.O> COVID-19 vaccine.

Pfizer and partner BioNTech flagged strong progress in their COVID-19 vaccine last week, sparking a rally in global equities.

"Euphoria is understandable, but unsustainable," strategists at French bank Societe Generale wrote in a note. "The surge of COVID cases in the US and Europe's second lockdown guarantee global economic weakness for several more months."

Many European countries have imposed curbs to fight a resurgence in virus cases. Sweden moved to restrict the size of public gatherings and a British medical adviser suggested strengthening the three-tier system of restrictions when the full lockdown in England ends.

Travel stocks <.SXTP> fell 1.1%, with British airline EasyJet <EZJ.L> down 1.9% after it recorded a 1.27 billion pound ($1.68 billion) annual loss, the first in its history as the pandemic ravaged the travel industry.

Healthcare <.SXDP> and tech <.SX8P> sectors that have outperformed the broader market during the pandemic declined 1.3% and 0.6% respectively.

Meanwhile, growth-linked cyclical sectors such as oil and gas <.SXEP> and automakers <.SXAP> reversed early losses and jumped 0.7% as investors bet progress in the development of a COVID-19 vaccine will support the battered sectors.

"The vaccine news eliminates downside risks but is more likely to trigger a rotation than an outright risk rally. We think cyclicals are set to outperform in this rotation," said TS Lombard's Oliver Brennan.

However, banks came under pressure as Spain's BBVA <BBVA.MC> fell 4.4% after it and smaller rival Sabadell <SABE.MC> said they were in talks to create the country's second-biggest domestic lender by assets.

Sabadell jumped 6.8%.

British asset manager Intermediate Capital Group <ICP.L> surged 7.9% to the top of the STOXX 600 after reporting strong half yearly results.

Tobacco company Imperial Brands <IMB.L> jumped 7.3% after it forecast a rise in profit for 2021, helped by expected improvements in its e-cigarette business.

(Reporting by Sruthi Shankar and Shashank Nayar in Bengaluru; Editing by Anil D'Silva and Bernadette Baum)