By Shreyashi Sanyal and Ankika Biswas
(Reuters) -European shares snapped a three-day advance on Wednesday, weighed down by economically sensitive stocks, amid uncertainty over the outcome of the U.S. midterm elections and on concerns about rising inflation.
"There's been a risk-on mood in markets over the past few sessions, and today we just saw a bit of a pullback, and of course the uncertain results in the midterm election is weighing on the U.S. markets and also dragging down European markets," said Andrea Cicione, head of research at TS Lombard.
"Markets generally like the economy to be left to its own devices. And the split between the President and Congress is likely to yield that kind of result."
The pan-European STOXX 600 index closed 0.3% lower after clocking an eight-week closing high in the prior session.
Energy stocks slipped 1.8%, owing to falling oil prices following higher-than-expected U.S. crude stockpiles and concerns that a rebound in COVID-19 cases in top importer China would hurt fuel demand.
Other cyclical sectors such as travel & leisure, miners and banks fell between 1.1% and 2.1%.
The latest developments showed Republicans made modest gains in U.S. midterm elections and Democrats performed better than expected, but control of Congress and the future of President Joe Biden's agenda were still unclear on Wednesday.
Markets were largely pricing in a Republican victory which could lead to a split Congress, viewed as a more favourable outcome for financial markets.
Wall Street's main indexes fell amid uncertainty around the outcome of the tightly contested election. [.N]
There were also concerns about inflation. An European Central Bank survey showed that inflation expectations among euro zone consumers continued to rise in September, even as economic growth and income forecasts declined markedly.
Investors awaited Thursday's U.S. consumer price data for October as well, to determine if the Federal Reserve's aggressive tightening policy has helped rein in inflation.
Among major stocks, Germany's Commerzbank (ETR:CBKG) shed 7.2%, weighing down the banks index by 1.1%.
The lender said its net profit fell by 52% in the third quarter in a better-than-expected outcome, helped by higher interest rates, though it had previously flagged problems at a Polish unit weighed.
Dutch bank ABN Amro rose 4.4% as it beat analysts' expectations, saying its net profit had more than doubled to 743 million euros ($747.98 million) in the third quarter.
Britain's Marks & Spencer (OTC:MAKSY) slipped 3.4% after warning of a "gathering storm" of higher costs and pressure on household budgets.
German speciality chemicals maker Lanxess dropped 2.4% as it cut the top end of its forecast range for annual profit on weaker demand.