By Kit Rees
LONDON (Reuters) - European shares fell on Wednesday in cautious trading on the eve of a European Central Bank meeting, while tensions on the Korean peninsula weighed on risky assets.
The pan-European STOXX 600 (STOXX) index was down 0.3 percent, poised for its third straight day of losses, while euro zone blue chips (STOXX50E) retreated 0.2 percent.
Germany's DAX (GDAXI) fell 0.1 percent, and Britain's commodity-heavy FTSE 100 (FTSE) declined 0.5 percent.
Financials were the biggest weight, with Europe's banking index (SX7P) extending its slide from the previous session as the sector came under renewed pressure ahead of the ECB's policy meeting on Thursday, which will be watched for possible signals of monetary tightening.
"Data from Europe has been very good recently, the euro has strengthened, confidence is high, inflation has started to pick up, so I think the economy is definitely in a position to be able to start tapering those purchases back, but whether or not they'll do it quickly, that's another thing," Rachel Winter, senior investment manager at Killik & Co, said.
Winter added that financials had also been under pressure on the back of concern that there could be a delay in raising interest rates in the United States, since Friday's disappointing U.S. jobs report.
Denmark's Jyske Bank (CO:JYSK) was the biggest STOXX faller, dropping 4 percent after BRFholding reduced its stake in the lender.
Political tensions weighed on markets after North Korea warned of "more gift packages" for the United States.
"There was a lot of surprise about how resilient the market had been, so over the last three days I am really not surprised it has started to come down a bit," Killik's Winter added.
Almost every European sector was in negative territory, with basic resources (SXPP) down 0.3 percent and oil and gas stocks (SXEP) falling 0.4 percent, albeit reducing earlier losses as commodity prices regained ground.
Elsewhere results spurred some sizeable individual stock moves, with shares in Micro Focus (L:MCRO) soaring nearly 8 percent to the top of the STOXX after a well-received third quarter update.
British housebuilder Barratt Developments (L:BDEV) declined 3.3 percent, however, after it issued a cautious outlook.[nL8N1LN1K4]
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Daimler (DE:DAIGn) led auto stocks (SXAP) higher, the only sector to make any gains, after Goldman Sachs (NYSE:GS) raised its rating on the Mercedes maker to "buy".
"We believe the process of creating separate legal entities is a precursor to a more flexible holding company structure, potentially paving the way for a Truck listing that would release shareholder value," analysts at Goldman Sachs said in a note.