By Shreyashi Sanyal

(Reuters) – European shares fell on Wednesday, with Mercedes Benz Group leading losses in automobiles stocks, while a blast in Poland kept sentiment subdued and pushed up defence stocks.

The pan-European STOXX 600 index fell 0.4% by 0924 GMT.

Auto stocks tumbled 2.8% to lead sectoral declines, and were headed for their biggest one-day percentage fall in almost seven weeks.

Mercedes Benz Group AG slid 5.0% after a report said that the German automaker slashed its China electric vehicle prices by up to $33,000 as sales lagged.

“For the (European) automobile sector this kind of sales impact comes from China’s restrictions and fears of a recession, despite Europe and China having good trade relations,” said Raed Alkhedr, chief market analyst at Equiti.com.

U.S. President Joe Biden said a missile that killed two people in Poland was probably not fired from Russia, after an emergency meeting of NATO leaders called to discuss the strike.

“It is the worst when we hear such news, even if it’s not from Russia, this still causes uncertainty in the markets and the European market is especially fragile heading to a confirmed recession next year due to the energy crisis and geopolitical tensions,” Alkhedr said.

The European aerospace and defence sector climbed 0.9% following news of the blast.

Shares of German arms maker Rheinmetall, Italy’s Leonardo, French defence and technology group Thales, Sweden’s SAAB and Britain’s biggest defence company BAE Systems rose between 1.7% and 3.5%.

The STOXX 600 has dropped more than 11% so far this year and though that is less than the S&P 500 index’s 16% decline, market players remain wary of investing in Europe.

Multiple data points signalled a euro zone recession amid the European Central Bank’s aggressive monetary tightening cycle to control record-high inflation.

Investors will turn focus to UK’s budget on Thursday, when Britain’s finance minister Jeremy Hunt will likely announce tax hikes and spending cuts to control price growth as surging household energy bills and food prices pushed British inflation to a new 41-year high in October.

London’s FTSE 100 index crept 0.3% higher.

Air France-KLM plunged 10.6% after the company said it was offering subordinated bonds convertible into new shares for 300 million euros ($312 million).

Italy’s top commercial broadcaster MediaForEurope (MFE) dropped 2.5% after it said its operating profit slumped 65% in the first nine months.

(Reporting by Shreyashi Sanyal in Bengaluru; Editing by Rashmi Aich and Dhanya Ann Thoppil)