UKX FTSE 100 Index

By Carla Mozee and Sara Sjolin, MarketWatch

Bank of England decision gives hope for May rate hike

European stocks dropped to their lowest in three weeks Thursday, struggling after data showed business activity in the eurozone at its slowest pace of expansion in more than a year.

The Bank of England kept its interest rates on hold as expected, but did little to dispel expectations that it could tighten policy at its May meeting.

How markets are moving

The Stoxx Europe 600 index fell 1.1% to 370.88, trading around its lowest level since March 5, according to FactSet.

France's CAC 40 index gave up 1.3% to 5,170.35, and Germany's DAX 30 slid 1.2% to 12,164.69.

The U.K.'s FTSE 100 index shed 1.2% to 6,958.55, after opening below the 7,000 mark for the first time since December 2016.

The euro bought $1.2326, down from $1.2338 late Wednesday in New York, pulling back from an intraday high of $1.2369.

Read:Germany's DAX forms 'death cross' chart pattern (http://www.marketwatch.com/story/ach-du-meine-gute-germanys-dax-forms-death-cross-chart-pattern-2018-03-21)

What's driving markets

Equities in Europe were under pressure as data firm IHS Markit's closely watched readings on business activity in the eurozone fell short of expectations.

Separately, a report showed German business sentiment slightly dampened in March Think-tank Ifo said its survey indicated the threat of protectionism in global trade is darkening sentiment in Europe's largest economy.

Read:China talks tough on trade, vows action against U.S. tariffs (http://www.marketwatch.com/story/china-talks-tough-on-trade-vows-action-against-us-tariffs-2018-03-22)

In the U.K., the pound initially rallied after the BOE kept its key interest rate at 0.5%, but with a 7-2 split of votes on the Monetary Policy Committee. That, along with signs that wages are firming, suggest that the bank is getting ready to hike rates in May.

What strategists are saying

-- "The message from the Bank of England to borrowers couldn't really be clearer: Get ready for higher rates now. Two members voted for a rate rise this month, and the Bank said nothing to dispel expectations that rates will rise in May," said Ed Monk, associate director for Personal Investing at Fidelity International, in a note.

"The MPC breaks up now for a month and returns in May, with the signs pointing to a rate rise. Despite that, the upward trajectory of interest rates is still expected to be gradual," he added.

-- "[I]nvestors continue to display an anxiety about the path of interest rates against a backdrop of escalating trade conflicts," said Craig Erlam, Oanda's senior market analyst, in a note.

"On top of that, Donald Trump seems intent on starting trade wars, most notably with China, which could trigger a wave of protectionism and drive up prices in the U.S. and likely weigh on the growth momentum. How the central bank deals with this will be very interesting, given the already fast pace of hikes," Erlam said.

Economic data

IHS Markit said its flash eurozone composite purchasing managers' index -- which covers both manufacturing and services -- was at 55.3, a 14-month low. That was below the 56.8 consensus estimate from a FactSet survey of analysts.

The eurozone's current-account surplus -- which measures the flow of goods, services and investments -- rose in January to EUR37.6 billion (http://www.marketwatch.com/story/eurozone-current-account-surplus-rises-in-january-2018-03-22), the highest level in four months, according to European Central Bank data.

U.K. retail sales grew by 0.8% (http://www.marketwatch.com/story/uk-retail-sales-rebound-in-february-2018-03-22) on month in February, twice the pace seen in a Wall Street Journal survey of analysts.

Check out:Brexit hard-liners fling fish into River Thames in bizarre protest (http://www.marketwatch.com/story/brexit-hard-liners-fling-fish-into-river-thames-in-bizarre-protest-2018-03-21)

Stock movers

Reckitt Benckiser Group PLC (RB.LN) shares surged 5.8% after the consumer goods company said it's ending talks about its potential purchase of Pfizer Inc.'s (http://www.marketwatch.com/story/reckitt-benckiser-ends-talks-to-buy-pfizer-unit-2018-03-22-44851030)(PFE) consumer health-care business. Reckitt Benckiser said it was looking to buy just part of the business, but that goal couldn't be met.

Ted Baker PLC (TED.LN) slid 6.7% after the luxury fashion retailer warned that trading conditions will remain challenging (http://www.marketwatch.com/story/ted-baker-2018-profit-up-but-warns-on-challenges-2018-03-22) in the markets in which it operates.

IG Group Holdings PLC (IGG.LN) climbed 3.2%, with the online trading platform posting a 30% rise in third-quarter revenue to GBP152.9 million pounds ($215.0 million), bolstered by increased client numbers and cryptocurrency trading (http://www.marketwatch.com/story/ig-revenue-hits-record-boosted-by-crypto-trading-2018-03-22).

United Internet AG (UTDI.XE) shares dropped 8.9% following a disappointing 2017 earnings report.

Halma PLC (HLMA.LN) fell 3% as the safety, health and environmental technology group said its first-half foreign-exchange benefits reversed in the second half. It also forecast adjusted pretax profit for fiscal 2018 to be in line with market expectations (http://www.marketwatch.com/story/halma-sees-2018-profit-in-line-with-forecasts-2018-03-22).

(END) Dow Jones Newswires

March 22, 2018 09:05 ET (13:05 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.