Europe close: Shares drop on US interest rate doubts

European stocks lost ground on Monday amid growing concern the Federal Reserve will raise interest rates at its next policy meeting.

The benchmark Stoxx Europe 600 index finished down by 0.95% at 342,23, while Germany’s DAX erased 1.34% to 10,431.67 and France’s CAC 40 lost 1.15% to 4,439.80.

Nevertheless, all the main indices did manage to close off their their worst levels of the day.

By the close of trading in London, oil prices had managed to move back into the black. West Texas Intermediate was higher by 0.43% at $46.08 a barrel and Brent crude was up by 0.29% to $48.15.

Banks and Basic Resources paced losses, with their respective Stoxx 600 subindices surrendering 2.05% and 1.77%.

Spreadex analyst Connor Campbell said: “Multiple reasons have been given for this sudden shift downwards, including lingering disappointment over last week’s ECB inaction (or, more accurately, lack of discussion over extending QE), the perpetual Greek problems and worries over Hilary Clinton’s health.

“Chief among the catalysts for this morning’s heavy losses, however, is the fear that the Federal Reserve will raise rates during its meeting next week.”

With that in mind, investors were eyeing more comments from US central bank officials, with Fed governor Lael Brainard due to speak at 1815 BST. Tuesday will mark the beginning of the traditional ‘quiet period’ before the Fed’s policy meeting on 20-21 September.

Atlanta Fed president Dennnis Lockhart reportedly told reporters on Monday he would not comment on the probable likely actions by rate-setters when they next met in September, November and December.

“Financial markets seem to be very sensitive to remarks of Fed speakers at the moment,” he was cited as having said.

Speaking to the National Association for Business Economics, Lockhart said economic data released over the past few weeks, "warrant...serious discussion of a policy rate increase”.

In corporate news, German industrial gases company Linde was under pressure as it ended talks with US peer Praxair regarding a potential merger.

Linde said: "While the strategic rationale of a merger has been principally confirmed, discussions about details, specifically about governance aspects, did not result in a mutual understanding."

Elsewhere, German utility firm E.ON was also under the cosh as the power and energy trading business it is spinning off, Uniper, was due to start trading.

In London, Primark owner Associated British Foods fell sharply despite lifting its earnings outlook, as it revealed a sizeable pension deficit.