European stocks hit pause as trade doubts linger

By Medha Singh and Sruthi Shankar

(Reuters) - A three-day rally in European shares came to a halt on Monday as investors assessed the scale of progress from Friday's U.S.-China trade talks and worried that a Brexit withdrawal agreement was still some way off after earlier signs of a breakthrough.

The pan-European STOXX 600 index <.STOXX> closed down 0.5%, but erased nearly half of losses made earlier in the session as defensive sectors gained some favour and automakers rose.

Growing optimism around Sino-U.S. trade talks and a Brexit agreement had helped the index log its best one-day percentage gain since early January, making the slight pullback natural.

However, a report on Monday that Beijing wanted more talks before signing Washington's "phase one" deal added to doubts about a trade deal, with analysts warning that nerves over a slowdown in global growth and the Brexit process were still high.

"We need more information to determine whether the latest developments represent a structural change in the relationship between the U.S. and China," Bank of America Merrill Lynch's Claudio Irigoyen wrote in a note.

"The question remains on whether a deal that is sufficiently beneficial for both sides is within the set of feasible deals."

Late on Friday, the United States outlined the first phase of a trade deal and suspended this week's scheduled U.S. tariff hikes on Chinese goods, but existing tariffs remained in place and officials on both sides said much more work was needed before an accord could be agreed.

The 15-month trade war between the world's top two economies has sapped business confidence and disrupted supply chains around the world. Latest data out of China showed a further contraction in exports and imports in September.

Mining <.SXPP> stocks, among the chief barometers of concern over the Chinese economy, shed 2.5%, leading declines among the European sub-sector trading in the red.

Meanwhile, a Brexit deal was hanging in the balance on Monday after diplomats indicated the European Union wanted more concessions from Prime Minister Boris Johnson and said a full agreement was unlikely this week.

Britain's domestically focused FTSE mid-caps <.FTMC> gave up 0.56% following Friday's 4% surge, while London's blue-chip stocks <.FTSE> closed down 0.46%.

Bank <.SX7P> stocks were the biggest drag on the benchmark STOXX 600 index, down 0.8%, as euro zone bond yields fell due to investors pouring into the safety of fixed income.

Automakers <.SXAP>, edged 0.3% higher, extending gains for a fourth session, while sectors considered stable during times of economic uncertainties such as real estate <.SX86P>, utilities <.SX6P> and food and beverage <.SX3P> cut early losses.

Among individual movers, Swiss pharmaceutical companies Roche Holding AG <ROG.S> and Novartis AG <NOVN.S> dropped 0.4% and 0.8%, respectively, after a report that the United States was considering tariffs on Swiss pharmaceutical products.

Shares in Sophos Group Plc <SOPH.L> shot up 36% as private equity firm Thoma Bravo said it would take the British cybersecurity company private in a deal valuing the company at about $3.8 billion.

Shares of Jupiter Fund Management Plc <JUP.L> fell about 6% with Barclays and BofA Merrill Lynch lowering their earnings forecast after the firm said on Friday it expected to see net outflows of 1.3 billion pounds in the third quarter.

(Reporting by Medha Singh and Sruthi Shankar in Bengaluru; Editing by Lisa Shumaker)