Europe close: Stocks slip amid news out of China, rate hike concerns

Stocks in Europe fell again following an unexpectedly weak reading for a key manufacturing survey out of China overnight and news of fresh lockdowns in Chengdu, the capital of the Sichuan province.

A fresh batch of mostly stronger-than-expected data out in the US did little to alleviate concerns about the impact that central bank tightening might have on stock markets around the world.

"Investor pessimism has returned with a vengeance over the past week, and fears of a recession across the globe, and not just in Europe means that a return to, and drop below, the June lows now seems likely for a host of markets," said IG chief market analyst Chris Beauchamp.

The Stoxx 600 declined by 1.8% to 407.66, alongside a 1.6% drop for the German Dax to 12,630.23.

Meanwhile, Italy's one-year government note was 16 basis points higher to 1.21%, but prices for similarly-dated German and Spanish debt were instead heading higher and their respective yields lower.

In parallel, the US dollar index was up by 0.81% to 109.59 on the back of the latest data out of the States.

Worth noting, analysts at Morgan Stanley revised their call for the European Central Bank's 8 September policy meeting, telling clients to expect a 75 basis point hike and that short-term rates were set to rise to 2.0% by March 2023.

There was also some market chatter regarding the anticipated pick up in the US central bank's quantitative tightening, which was expected to accelerate starting from Thursday.

Back in the euro area, Eurostat reported that the rate of unemployment in the euro area ticked lower by one tenth of a percentage point in July to reach 6.6%.

According to Pantheon Macroeconomics's Claus Vistesen, "solid" labour market conditions would embolden the ECB.

Earlier, S&P Global's factory sector Purchasing Managers' Index for August was marked from a preliminary reading of 49.8 to 49.6 (consensus: 49.7) on the back of a hefty downward revision to the initial estimate for Germany (partly offset by an offsetting revision to the French numbers).