European shares ease from record high on rate cut uncertainty

U.S. producer prices (PPI) increased more than expected in February, fanning fears about a pick-up in inflation and casting doubt on whether the Federal Reserve would be able to start cutting interest rates in June.

European shares lost momentum on Thursday after hitting a series of record highs in the past few sessions, as further evidence of sticky U.S. inflation led to doubts about the timing of interest rate cuts, while weakness in miners added to the declines.

The pan-European STOXX 600 closed 0.2% lower, after notching an all-time peak for the third time in a row earlier in the session. U.S. producer prices (PPI) increased more than expected in February, fanning fears about a pick-up in inflation and casting doubt on whether the Federal Reserve would be able to start cutting interest rates in June. The report followed a hot consumer prices reading earlier this week.

Piling pressure on stocks, European bond yields rose after the PPI data, with Germany's 10-year yield, considered a benchmark for the euro zone, touching its highest level since March. 1. "The February inflation data were not great, but they were modestly encouraging after alarming data in January," BofA Global Research economists said in a note.

"We continue to expect the Fed will start its cutting cycle in June with a 25bp (basis point) cut. However, it will need to see more improvement in the upcoming inflation data to have enough confidence to begin to ease." Meanwhile, European Central Bank policymakers continued to line up behind a June interest rate cut but on Thursday offered contrasting views on the timing and pace of further moves.

A slowdown in euro zone inflation, hopes of rate cuts and positive corporate updates have pushed the STOXX 600 up 5.7% this year. Miners were the top sectoral losers in Europe on Thursday, down 1.4%, as prices of base and precious metals took a hit.

Embracer agreed to divest selected assets from its subsidiary Saber Interactive for $247 million, thereby ceasing all operations in Russia. Shares of the Swedish gaming company reversed early gains to drop 11.2%. Shares of Grifols fell 9.3% after credit rating agencies Fitch and S&P downgraded their ratings for the beleaguered Spanish drugmaker.

On the upside, Encavis shares skyrocketed 25.2% to the top of the STOXX 600 after private equity firm KKR launched a 2.8 billion euro ($3.06 billion) takeover offer for the German electricity and energy producer. German arms manufacturer Rheinmetall said it expects record sales and increased profitability this year, taking its shares up by 5.3% and boosting the aerospace and defense index.

France's blue-chip index outperformed other major European bourses to end up 0.3%.

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