European shares slump on hawkish ECB remarks, disappointing China data

The euro STOXX equity volatility index was up by nearly 15 points, while the yield on the benchmark German 10-year bond rose to a month-high.. Meanwhile, data showed China's economic growth rate for the fourth quarter missed market expectations, adding to the risk-off appetite for equities.

European shares extended losses on Wednesday as more hawkish remarks from European Central Bank (ECB) officials tempered interest rate cut expectations, while glum economic data from China further soured investor sentiment.

The pan-European STOXX 600 index was down 1.4% by 0920 GMT, hitting its lowest level in more than a month. In the latest remarks from policymakers, ECB President Christine Lagarde said the central bank is on track to get inflation back to its 2% target but victory had not yet been won, while Dutch central bank chief Klass Knot said markets are getting ahead of themselves in pricing monetary easing.

"Now that the dust is settling, we're seeing that some of that optimism (from last year) was a bit over. Markets need to readjust (their expectations)" said Anthi Tsouvali, multi-asset strategist at State Street Global Markets. "The cuts are not going to be as aggressive as the rate hikes, unfortunately. It is going to be more gradual."

While a pause in rate hikes is nearly priced in for the upcoming meeting in January, traders have pushed back rate-cut expectations to April from March. However, they still estimate a total of around 150-basis point cuts in interest rates this year. The euro STOXX equity volatility index was up by nearly 15 points, while the yield on the benchmark German 10-year bond rose to a month-high..

Meanwhile, data showed China's economic growth rate for the fourth quarter missed market expectations, adding to the risk-off appetite for equities. China-exposed luxury stocks, including LVMH and Kering, fell 1.7% and 2.7%, respectively.

Base and precious metal miners also shed 2.2%, bogged down by weak copper and gold prices on a strengthening dollar. All major sectoral indexes traded in the red, with rate-sensitive real estate down 2.7%, leading declines.

Britain's blue-chip FTSE 100 slid 1.6% after data showed its inflation climbed in December, in a further blow to rate cut bets. Market focus will now shift to the final consumer prices data for the euro zone, due at 1000 GMT, and towards more remarks from Lagarde at the World Economic Forum later in the day.

Among other movers, Telecom Italia rose 1.5% after the Italian government gave the go-ahead for the sale of its fixed line network to U.S. fund KKR