Europe close: Stoxx 600 falls to two-week low

The pan-European benchmark fell 0.4% to 513.7, its lowest since 2 December, having now declined in five of the past six days.

Stocks in London fell 0.8% and Frankfurt's index slipped 0.3%, while losses of 1.2% and 1.6% were seen in Milan and Madrid respectively. The Cac 40 in Paris however, managed to eke out a 0.1% gain.

Two central bank meetings later in the week were likely weighing on investors minds, with the Federal Reserve expected to cut interest rates on Wednesday and the Bank of England tipped to hold rates steady on Thursday.

Reinforcing expectations of no change from the BoE was labour-market data from the UK out on Tuesday, which showed that annual earnings growth jumped to 5.2% in the three months to October, up from 4.9% the month before.

"The stronger print has all but assured the Bank of England will hold rates steady on Thursday," said Matt Britzman, senior equity analyst at Hargreaves Lansdown. "Investors are now in wait-and-see mode, watching whether the labour market cools in the wake of the Budget, with February's rate cut prospects looking like a coin toss."

Over in the US, while the Fed is widely expected to move ahead with another rate cut this week, stronger-than-expected retail sales data out during the session may have tempered projections for further monetary easing in 2025. Stocks on Wall Street were trading firmly in the red.

Commenting on the negative market reaction in London and New York, Dan Coatsworth, investment analyst at AJ Bell, said: "It might simply be investors locking in some profit before Christmas with a view to taking a short break. Any sense that rate cuts might become more pedestrian in the new year could cause a wobble on markets and some investors could be reducing their exposure until conditions move more in their favour."

In other economic data, German business sentiment unexpectedly improved in December, according to a survey by the ZEW Center for European Economic Research. The headline ZEW investor expectations index rose to 15.7 from 7.4 the month before, beating expectations for a reading of 6.2.

Also in Germany, Chancellor Olaf Scholz lost a no-confidence vote in his government on Tuesday and called elections for February 23.

Market movers

Dutch tea and coffee giant JDE Peet's dropped 7% with coffee prices currently trading at their highest levels in nearly 50 years.

London-listed Bunzl slid 6% after the packaging company released a trading statement saying revenues would rise but would be held back by inflation and weaker volumes.

Oil majors were in the red as Brent crude fell 1.5% to $72.83 a barrel, including BP, Shell, Repsol and TotalEnergies.