Europe close: Stoxx 600 drops 1% on profit-taking ahead of weekend

The pan-European Stoxx 600 index finished the day down 4.5 points or 1% at 443.3, bouncing off a low of 441.1 after a positive start on Wall Street. Ahead of Friday, the index had gained 4.2% over the past two weeks.

Axel Rudolph, analyst at IG, said European markets were "taking a hit on profit-taking ahead of the weekend".

London's FTSE 100 was the worst performing index across the continent, falling 1.3% after disappointing update from drinks giant Diageo, as well as heavy falls in the mining and housebuilding sectors.

Markets across Frankfurt and Paris fell 0.8% and 1%, respectively.

However, indices in Madrid and Milan outperformed the rest of Europe, falling by 0.4% and 0.5%, respectively, as heavyweight banking and financial stocks rose, including Italy's Banco BPM, Assicurazioni Generali, BPER Banca and Unipol Gruppo, along with Spain's Bankinter and Banco Santander .

Nevertheless, markets got off to a rough start on Friday morning on the back of a weak finish on Wall Street on Thursday – even though positive moves after the US opening bell helped European stocks come off their lows in afternoon trade.

Expectations have risen in recent weeks that central banks across Europe, the UK and US were done with monetary tightening for now, as inflation begins to ease and economic data weakens. But Federal Reserve chair Jerome Powell on Thursday spooked investors who have convinced themselves that more rate hikes are off the table.

Powell said that further rate hikes would be necessary to sustainably bring inflation down to the 2% target. "If it becomes appropriate to tighten policy further, we will not hesitate to do so," he said.

Economic news this side of the Atlantic was on the quiet side with UK GDP the only major release of the day. The Office for National Statistics showed that UK GDP was unchanged in the three months to September, versus consensus expectations for a 0.1% contraction. For the month of September, GDP rose 0.2% on the month following 0.1% growth in August, which was revised down from 0.2%. Economists were expecting no growth.

Diageo drags drink stocks lower

UK-listed drinks giant Diageo saw shares plummet 12% after saying it expects to see a slowdown in growth in the first half due to a weaker performance in Latin America and the Caribbean. The region, which accounts for 11% of group net sales values, is now expected to see an organic net sales decline of more than 20% in the second half compared with last year.

European drinks peers AB Inbev, Heineken, Carlsberg, Pernod Ricard, Royal Unibrew and Campari Group were all trading lower.

Also in London, housebuilders were providing a further drag after Redrow warned that profits would be at the lower end of expectations due to weaker market conditions. Berkeley, Barratt Developments and Taylor Wimpey were all firmly lower.

Meanwhile, a decline in risk appetite weighed heavily on mining stocks as metal prices dropped, with UK-listed Fresnillo, Anglo American and Antofagasta in the red, along with European peers ArcelorMittal and Sandvik.

Shares in Richemont fell in Zurich, after the Cartier, Chloe and Net-A-Porter owner posted first-half results below expectations and flagged weaker customer sentiment. The Swiss group reported a 6% increase in sales to €10.2bn, below the €10.34bn forecast. Burberry, Hermes, LVMH, Kering and Christian Dior were also falling on negative readacross.

French residential care-home provider Orpea finished 20% down, partially pulling back after a huge 46% surge on Thursday following a court decision that gave the indebted company's rescue plan the green light. The Paris Court of Appeal said that bank Caisse des Depots et Consignations could acquire a majority stake in Orpea without launching an official takeover bid. Even after Thursday's movement, the stock has fallen by 84% year-to-date.

GN Store Nord was the highest riser on the Stoxx 600, rising 11% after the Danish hearing aid and headset group delivered in-line third-quarter results following a number of disappointing updates earlier in the year.