By Nikhil Sharma and Purvi Agarwal
(Reuters) -European shares closed lower on Thursday, after four sessions of gains, as investors booked some profits and assessed interest rate decisions by major central banks across the continent.
The pan-European STOXX 600 closed 0.4% lower.
Investors digested decisions from the Bank of England and Sweden’s Riksbank, as they held interest rates at 4.5% and 2.25% respectively, while the Swiss National Bank cut its policy interest rate by 25 basis points to 0.25%.
Regional indexes in the UK and Sweden closed lower, while Switzerland’s was higher.
The U.S. Federal Reserve stood pat on its policy rates on Wednesday, lowered its economic growth outlook for this year and raised inflation projections due to higher uncertainty from U.S. President Donald Trump’s trade tariffs.
European Central Bank President Christine Lagarde said a 25% tariff imposed by the U.S. would lower euro zone growth by 0.3 percentage points in the first year, while retaliatory measures could increase this to about half a percentage point.
"Lagarde’s speech this morning and the bearish signals we received from the Fed and the BoE have warned that the risk for stagflation is rising if Trump continues what he has been doing," said Jochen Stanzl, chief market analyst at CMC Markets (LON:CMCX).
"There is also some profit taking."
European banks dropped 2.2%, as did automobile and parts. The banks index had hit a record high on Wednesday.
The continent-wide aerospace and defence index fell 2%, giving back recent gains on optimism around Germany’s fiscal reforms, set to be presented to the upper house of the parliament on Friday.
Stanzl also said that investors will have to be prepared for disappointments if the hopes from Germany’s fiscal reforms remain as high as they are now.
Geopolitical uncertainty also lingered after Ukraine struck a major Russian strategic bomber airfield, triggering a huge blast and fire about 700 km (435 miles) from the front lines of the war.
Among stocks, Sodexo (EPA:EXHO) dropped over 17% to the bottom of the STOXX 600 after the French food caterer lowered its 2025 outlook. The stock also logged its biggest one-day fall in over 22 years.
Commerzbank (ETR:CBKG) fell 3.3%. CEO Bettina Orlopp said the lender hasn’t had talks with UniCredit since the ECB’s approval for taking a stake of just under 30% last week.
Swiss watchmakers Richemont (SIX:CFR) and Swatch Group (SIX:UHR) fell 2.9% and 4.2%, respectively, after data showed Swiss watch exports fell in February.
Lanxess (ETR:LXSG) fell 5% after the German chemicals maker said it expected full-year 2025 earnings to be impacted by slow economic growth and a high likelihood of politically triggered economic turbulence.