European equities fell on Thursday with lenders leading declines after the US Federal Reserve delivered a smaller rate hike amid worries of a bank contagion.
The continent-wide STOXX 600 index slipped 0.7 per cent after closing at its highest level in more than a week on Wednesday.
US stock futures, however, stabilised following a turbulent session on Wall Street after the Fed lifted interest rate by a widely expected 25 basis points and signalled that they are unlikely to climb much higher.
"Bear in mind that the market is still pricing more than two rate cuts by year-end. We doubt this pricing can really stand against sticky inflation, growth in the US, but also in Europe and China actually re-accelerating," Max Kettner, chief multi-asset strategist at HSBC Global Research, said
"Our view remains that the first Fed rate cut will only come in summer 2024, which leaves a lot of room for hawkish repricing."
Further weighing on the mood, US Treasury secretary Janet Yellen told lawmakers that she had not considered or discussed "blanket insurance" to banking deposits after the failure of two US mid-sized lenders earlier this month.
European banks fell 2.1 per cent after a tentative rebound earlier this week when UBS Group agreed to buy embattled Swiss lender Credit Suisse in a $3 billion rescue deal.
The index is down about 15 per cent so far in March and set for its worst monthly showing since March 2020 when the onset of Covid-19 pandemic fuelled a sharp global selloff.
Citigroup downgraded the sector, warning the rapid pace of interest rate hikes would further weigh on economic activity and lenders' profits.
Ahead of a rate decision in the UK by the Bank of England, the Swiss National Bank raised its benchmark interest rate by 50 basis and Norway's central bank hiked by 25 basis points, both in line with market expectations.
Among single stocks, Sanofi rose 5.2 per cent after the French drugmaker said its asthma and eczema drug Dupixent, jointly developed with Regeneron, met all targets in a trial to treat "smoker's lung".
Dutch tech investor Prosus climbed 4.4 per cent after Chinese video-game company Tencent said it would restrict its focus to its core business, while maintaining cost-cutting and improving efficiencies.
The broader technology index was the sole gainer in Europe, up 0.7 per cent. -Reuters
