Europe open: Shares slip on rate fears, Moody's US credit warning

European shares opened lower on Tuesday as persistent fears over higher interest rates and a warning from Moody's that a looming US government shutdown would threaten America's triple-A credit rating.

The pan-European Stoxx 600 index was down 0.63% with all major regional bourses lower.

Moody's overnight warned that a shutdown would be "credit negative for the US sovereign”.

“In particular, it would demonstrate the significant constraints that intensifying political polarisation put on fiscal policymaking at a time of declining fiscal strength, driven by widening fiscal deficits and deteriorating debt affordability," it added.

Hard-right Republican members of the House of Representatives are refusing to reach a compromise with their own party’s leadership over a spending bill, leaving just a few days left for Capitol Hill to avert a shutdown, by passing a spending bill by October 1 or see hundreds of thousands of federal workers laid off.

Meanwhile central bankers repeated the message that a cut in interest rates was not coming anytime soon. European Central Bank chief Christine Lagarde said they would need to stay restrictive for as long as necessary.

Federal Reserve member Neel Kashkari said “rates probably have to go a little higher, and then be held higher for longer”.

In equity news, banks were up on the prospect of higher profits on the back of elevated interest rates, with Barclays shares rising 2% in a weak market.

Reporting by Frank Prenesti for Sharecast.com