European shares drop as trade optimism wanes, geopolitical tensions rise

By Purvi Agarwal and Pranav Kashyap

(Reuters) -European equities logged their fourth consecutive decline on Thursday as trade optimism dimmed, while mounting geopolitical tensions prompted a pullback from risk assets.

The pan-European STOXX 600 closed 0.3% lower, after touching its lowest levels in over a week during the session.

This extended selloff marks its longest daily losing streak in over two months.

The primary catalyst was the persistent lack of clarity surrounding global trade policy. U.S. President Donald Trump on Wednesday announced a willingness to extend trade talk deadlines while indicating it might not be "necessary" as "offer letters" are imminent.

While recent talks with China resulted in a deal, they failed to dismantle existing tariffs or resolve long-standing structural trade imbalances.

Treasury Secretary Scott Bessent said the European Union had been slower in presenting robust proposals, but was now showing "better faith".

However, markets were sceptical about an EU-US deal before Trump's July 8 deadline, when the tariff pause expires.

Geopolitical worries fueled more market caution after Trump said some U.S. personnel were being moved out of the Middle East amid rising tensions with Iran.

"If Israel were to strike Iran, the consequences ... would depend on the severity of Iran's retaliation," said James Swanston, senior economist at Capital Economics.

Surging oil prices provided a tailwind for the energy sector to become the session's standout performer. [O/R]

Utilities, often traded as a bond proxy, gained 0.8%, in tandem with Eurozone bond prices.

Travel and leisure dropped the most among sectors. Boeing shares fell 8% after one of its jets operated by Air India crashed in India's Ahmedabad, claiming more than 200 lives.

London's FTSE 100 gained 0.2%. Fresh data highlighted a sharp deceleration in Britain's economy in April, partly due to Trump's tariffs and subdued consumer spending.

"The Bank of England will almost certainly leave interest rates steady at its June meeting and will keep its options open for the subsequent meeting in August," said Paul Dales, chief UK economist at Capital Economics.

European Central Bank Executive Board Member Isabel Schnabel said ECB interest rates are in a "good place" despite an expected slowing of inflation.

Traders see just one more 25 basis point cut by the end of 2025.

Among stocks, BE Semiconductor Industries (BESI) rose 3.6% after raising its long-term financial targets ahead of its investor day.

Halma gained 3.3% after the health and safety device maker's annual adjusted pretax profit beat expectations.

(Reporting by Purvi Agarwal in Bengaluru; Editing by Mrigank Dhaniwala, Tasim Zahid and Richard Chang)