By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets moved cautiously
lower on Tuesday, as investors remained wary ahead of the U.S.
Federal Reserve's policy meeting, on fears it could signal a
potential slowdown in the bank's asset purchases.
The Stoxx Europe 600 index dropped 0.1% to close at 293.02 after
swinging between small gains and losses for most of the day.
The index has shaved off 5.7% since May 22, when Fed Chairman
Ben Bernanke mentioned a possible reduction to the bank's asset
purchases in coming months if data continue to improve. The
comments sparked worries that the bank will taper its
quantitative-easing program this year, with investors closely
awaiting hints from the June policy-setting meeting, which was due
to get under way on Tuesday. See: Roubini, Bremmer and the Fed
policy that's going to implode
"I think the bold expectations are that we will get some kind of
outline on the timing of tapering," said Keith Bowman, equity
analyst at Hargreaves Lansdown.
"It's difficult to say how the markets will react to it. They
may well come around to see it as a positive, because at the end of
the day it's the uncertainty investors don't like," he added.
Among notable movers in the pan-European index, shares of Danske
Bank AS posted one of the biggest losses in the index, off 6.1%,
after the Danish Financial Supervisory Authority ordered the bank
to adjust its internal rating model, saying the lender
underestimated its risky assets.
On a more upbeat note, shares of Whitbread PLC gained 3.6% after
the hotel and restaurant operator reported a 13.8% rise in total
sales, as cold weather boosted sales at coffee shops.
Shares of Kabel Deutschland Holdings AG climbed 3.7% after the
firm confirmed late Monday it has received a preliminary takeover
proposal from Liberty Global PLC (LBTYA).
Fed meeting on tap
For the broader European stock markets, investors were cautious
about placing any big positions ahead of the U.S. Fed's two-day
meeting, which ends Wednesday. Fed Chairman Ben Bernanke said in
late May that the central bank could start scaling back its
$85-billion-a-month asset-purchase program if data continue to
improve, fueling fears of market turmoil.
"On QE tapering, we think Bernanke will repeat the message that
the timing of tapering is completely data-dependent. He is unlikely
to give more-precise indications than to repeat that if the labor
market continues to improve, QE tapering could start within the
next few meetings. We continue to see a 50/50 chance of a September
or a December start to tapering," analysts at Danske Bank said in a
note.
"So far, job growth is set to stay around the 170,000 level in
June, based on the most recent jobless claims data. This is just
enough to keep expectations for a September move alive, but if
inflation expectations continue to trend lower over the coming
months and job growth stays below 200,000, this could push the
first tapering into December," they added.
Inflation was also in the U.S. data headlines on Tuesday, after
a report showed the consumer-price index rose a seasonally adjusted
0.1% in May, as the inflationary pressure on the broader economy
was largely subdued.
Additionally, U.S. housing starts picked up 6.8% in May,
signaling continued healthy activity in the building sector.
U.S. stocks traded higher on Wall Street.
Back in Europe, the ZEW indicator for economic sentiment in
Germany improved 2.1 points in June to 38.5, slightly better than
expectations of a 38 print.
Movers
Among notable movers in Europe, car makers posted some of the
biggest losses after data showed new car registrations in the
European Union dropped to the lowest level in 20 years in May.
Shares of Daimler AG lost 0.9% in Frankfurt, BMW AG shaved off
1% and Volkswagen AG fell 0.3%.
Germany's DAX 30 index , however, closed 0.2% higher at
8,229.51, with banks on the rise. Shares of Commerzbank AG added
2.1% and Deutsche Bank AG (DB) put on 1%.
France's CAC 40 index dropped 0.1% to 3,860.55.
The U.K.'s FTSE 100 index climbed 0.7% to 6,374.21, boosted by
HSBC Holdings PLC (HBC) . The bank climbed 2.1% after Citigroup
lifted the stock to buy from neutral.
Shares of EasyJet PLC added 2.2% after the budget airline said
it would buy 135 A320 planes from Airbus for delivery between 2015
and 2022.
Outside the major indexes, shares of Aveva Group PLC picked up
5.4% after Citigroup lifted the software firm to buy from
neutral.
Shares of Royal Imtech NV sank 11.5% after the infrastructure
firm reported a loss of 59.6 million euros ($79.7 million) for the
first fiscal quarter and said it had a difficult quarter.
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