(Bloomberg) -- European stocks fell on Thursday, sapped by fears that the conflict in the Middle East could spread and hurt the world economy.
The Stoxx Europe 600 Index ended with a 0.9% decline at its lowest level in nearly two weeks, as investors waited to see if Israel’s government will retaliate against Iran for its recent missile attack. Almost all European sectors were in the red, with automakers, construction and miners leading declines. As oil prices climbed for a third day, the energy subindex rose 0.3%.
Italian stocks underperformed, with Milan’s FTSE MIB benchmark dropping 1.5% after Finance Minister Giancarlo Giorgetti laid out plans to raise taxes on firms to help cut the country’s budget deficit.
Among individual stocks, Tesco Plc shares rose after the British supermarket operator hiked its profit outlook for this fiscal year. Shares in SAP SE fell after US prosecutors widened their probe of potential price-fixing by the German software maker.
Chinese stimulus measures and expectations of further interest-rate cuts in the US propelled European equities to a record level last week, but they have since retreated, pressured by the deepening Israel-Hezbollah conflict and concerns over the upcoming earnings season. The euro-area economy is also slowing, recent business activity data indicated, with a deepening manufacturing downturn.
Carol Schleif, chief investment officer at BMO Family Office, said, however, that barring any major escalation on the geopolitical front, economic growth should hold up, supporting stocks.
“Economically and fundamentally there is a lot to be said for markets continuing to move higher,” Schleif said by phone. “Will it be a straight line? No, not necessarily.” Global volatility has been lower than expected over the past few years, she added.
Traders will be watching tomorrow’s release of US monthly jobs data for clues as to the health of the labor market.
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--With assistance from Michael Msika.
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