By Susan Mathew and Bansari Mayur Kamdar
(Reuters) -European shares fell on Tuesday as investors worried about the squeeze to economic growth from aggressive monetary policy tightening by central banks in a bid to tame rising inflation, while retail stocks declined after U.S. retailer Target (NYSE:TGT)'s gloomy warning.
The pan-European STOXX 600 index fell 0.3%, with the retail stocks index down 0.9% after Target slashed its quarterly margin forecast for the second time in less than a month.
"Retail stocks have taken an absolute battering since the start of the year and I can't imagine there's going to be any respite for them in the foreseeable future," said AJ Bell financial analyst Danni Hewson.
"That is why we're seeing so many so much merger and acquisition activity at the moment."
Rate-sensitive technology stocks fell 1.1%, with French software maker Dassault Systemes shedding 2.3% after a brokerage downgraded the stock.
Australia's central bank raised interest rates by the most in 22 years and flagged more tightening to battle rising prices. This comes as investors await a European Central Bank (ECB) meeting and U.S. inflation data this week.
The ECB has signalled rate hikes starting next month, and investors wait to see if record high inflation in May would lead to a change in stance at Thursday's meeting.
"People are really struggling to deal with soaring prices," Hewson said. "Even if we don't get that small move on Thursday, we'll certainly have rhetoric indicating that it is on the way."
On Friday, data is expected to show a rise in May U.S. consumer prices, leading to some speculation that the Federal Reserve may need to carry on hikes beyond July.
Underlining slowing economic growth, data showed German industrial orders fell more than expected in April, the third decline in a row, driven by weakened demand and heightened uncertainty due to the Russian-Ukraine conflict.
London's FTSE 100 fell 0.1%, while a volatile sterling trimmed losses, with investors on edge a day after British Prime Minister Boris Johnson survived a confidence vote that left him politically weakened. (L)
Among individual stocks, Biffa jumped 27.2% after it received a possible buyout offer from affiliates of private equity firm Energy Capital Partners, valuing the British waste-management specialist at about 1.36 billion pounds ($1.69 billion).
British fashion chain Ted Baker plunged 18.4% after it said its preferred bidder backed out of making a takeover offer.
SAS slumped 13.9% after the Swedish government said it would not inject new capital into the loss-making airline and did not aim to be a long-term shareholder in the company.