(Bloomberg) -- European stocks fell Tuesday as a faltering rally in Chinese shares hit sectors most exposed to its economy. Investors are also worried that the Federal Reserve will reduce interest rates by less than had been previously expected.
The Stoxx Europe 600 Index dropped 0.55% by the close, after declining as much as 1% earlier. Luxury shares and miners — which rely on China for revenue — were among sectors leading the retreat. Remy Cointreau SA slumped 6.4% as China imposed a levy on brandy from the European Union, escalating a trade dispute.
So-called defensive sectors like utilities, telecoms and consumer staples outperformed.
A gauge of Chinese stocks in Hong Kong tumbled the most intraday since 2008 as traders questioned Beijing’s resolve to add more stimulus. US stocks had also slumped overnight, led by technology and amid geopolitical concerns in the Middle East.
European equities have stumbled in their recovery from the summer selloff on concerns about weak regional economic growth. While fears of a US recession have abated, sentiment is now under strain from wagers that the Fed won’t cut interest rates as agressively as expected.
Traders aren’t fully pricing even a 25 basis-point reduction from the Fed at its meeting next month, according to swaps data.
“European investors are between a rock and a hard place today,” Panmure Liberum strategist Joachim Klement said, citing the bleaker rates outlook and lack of new China stimulus. “What we need to see is a soft CPI data release in the US on Thursday to change the narrative or evidence that the Chinese government is following through on its stimulus promises.”
Among individual stocks, Continental AG reversed declines after reports it has lined up banks to help with the separation of its struggling car parts business, moving ahead with the plans despite recalls related to its faulty braking systems.
For more on equity markets:
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- M&A Watch Europe: Continental; Tennet Holding; Fnac Darty
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- US Stock Futures Little Changed; PROCEPT BioRobotics Gains
- Weak Shell: The London Rush
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--With assistance from Michael Msika.
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