German stocks cut losses as Merz elected as chancellor after initial setback

By Sukriti Gupta and Nikhil Sharma

(Reuters) - German shares trimmed early losses on Tuesday after conservative leader Friedrich Merz was elected chancellor during a second vote in parliament after an unexpected initial setback.

Germany's DAX index ended 0.5% lower, after falling as much as 2% earlier when Merz's new alliance with the centre-left Social Democrats was dealt a surprise defeat in the first attempt.

"It's very un-German because we know Germany particularly for its political stability. Until recently, it would have been unthinkable that parliament would not vote immediately for the...candidate," said Teeuwe Mevissen, senior market economist at Rabobank.

The pan-European STOXX 600 index closed down 0.2%, snapping a 10-day winning streak.

Uncertainty over tariffs also weighed, with investors attempting to keep up with U.S. President Donald Trump's unpredictable trade policies.

Trump said on Monday he intended to announce pharmaceutical tariffs over the next two weeks. This came a day after he announced a 100% tariff on movies produced outside the U.S.

The sub-index of healthcare companies lost 1%, with shares in heavyweight drugmaker Novo Nordisk falling 4%.

"If there's something that investors are allergic to, it's uncertainty. So that's never good for stock markets," Rabobank's Mevissen added.

However, slight optimism remained around prospects of easing Chinese-U.S. trade tensions after Beijing last week said it was evaluating an offer from Washington to hold talks over tariffs.

Meanwhile, a survey showed the euro zone economy continued to expand in April but at a slower pace as demand weakened and the dominant services sector nearly stagnated, suggesting the region's recovery remains fragile.

The U.S. Federal Reserve is expected to keep rates unchanged on Wednesday, with attention on the policymakers' comments on the impact of tariffs on economic growth.

The Bank of England's rate decision is also due this week.

European companies are expected to report growth of 0.4% in first-quarter earnings, according to LSEG I/B/E/S data, compared to the 1.7% drop analysts had expected a week ago.

Vestas shares surged 8.9% after the wind turbine maker reported an unexpected operating profit for the first quarter.

Fresenius Medical Care jumped 5.1% after the German kidney dialysis company reported first-quarter results above market expectations.

On the downside, Philips fell 2.7% after the Dutch healthcare technology company cut its profit margin forecast for 2025.

Castellum slumped 6.2% after the Swedish real estate group posted weaker-than-expected first-quarter results.

Coloplast fell 6% after the Danish medical equipment maker's CEO stepped down on Monday and it reported a second-quarter miss on Tuesday.

(Reporting by Sukriti Gupta; Editing by Savio D'Souza, Sonia Cheema and Emelia Sithole-Matarise)