Vaccine-led rally stalls in Europe as travel shares slide

Sabadell shares jumped 3.5% to become the second-biggest gainer on the STOXX 600. Other economically sensitive sectors such as oil and gas and automakers retreated after a sharp rally in the past week as hopes of a vaccine prompted investors to bet on a faster economic recovery.

European stocks eased from eight-month highs as tighter coronavirus-driven restrictions across the continent hit travel stocks, halting a broader rally that was powered by encouraging COVID-19 vaccine news. The pan-European STOXX 600 slipped 0.1% in morning trading. The index closed at it highest level since Feb. 27 on Monday after positive data from drugmaker Moderna's COVID-19 vaccine.

Earlier, Pfizer and partner BioNTech flagged strong progress in their COVID-19 vaccine, sparking a rally in global equities last week. "Though the vaccine developments were incredibly positive, markets still have a bit of a 'show me the logistics' side to it," Deutsche Bank strategist Jim Reid wrote in a morning note.

Near-term economic outlook remains hazy as the grip of the virus grows stronger, with Sweden moving to restrict the size of public gatherings and a British medical adviser suggesting strengthening the three-tier system of restrictions when the full lockdown in England ends. Travel stocks fell the most, with British airline EasyJet sliding 5% after it recorded a 1.27 billion pound ($1.68 billion) annual loss, the first in its history that also highlights the extent of the pandemic's impact on air travel.

European banks retreated after a more than 3% surge on Monday. BBVA fell 4.2% after it and smaller rival Sabadell said they were in talks to create Spain's second-biggest domestic lender by assets. Sabadell shares jumped 3.5% to become the second-biggest gainer on the STOXX 600.

Other economically sensitive sectors such as oil and gas and automakers retreated after a sharp rally in the past week as hopes of a vaccine prompted investors to bet on a faster economic recovery. Tobacco company Imperial Brands gained 3% after it forecast a rise in profit for 2021, helped by expected improvements in its e-cigarette business.

Defensive sectors such as utilities and healthcare inched higher.