By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets dropped on
Tuesday, after climbing to multiyear highs in the prior session,
with investors cautious about making any major moves before more
clarification on the U.S. Fed's potential exit from easing
measures.
The Stoxx Europe 600 index lost 0.3% to 308.92, retreating from
the highest closing level since June 2008, reached on Monday.
The index closed higher the past four weeks, as aggressive
liquidity injections from central banks world-wide lured into
investors into the equity markets rather than the lower yielding
bond or cash markets. Weak data out of the euro zone last week
further added to the central-bank driven rally, as they raised
expectations of a rate cut at the next European Central Bank
meeting.
"We're seeing a bit of a correction today, but it's not a
surprise given that we have had a steep rally. Markets were looking
for a reason to see a correction and talks about the [U.S.] Fed
tapering off the QE program over the summer weigh on markets," said
Philippe Gijsels, head of research at BNP Paribas Fortis Global
Markets.
"I think it's a bit premature, but they will have to do it at
some point. Markets have been driven by central-bank action and
anything that changes that will spook markets. We could see this
profit-taking go on for a bit, but we won't see a major
correction," he added. "There's a lot of money on the sidelines
that missed the rally and that money will use a correction as an
opportunity to get into the market."
Speakers
Investors on Tuesday were also looking for hints on how and when
the Federal Reserve will end its easing program, with St. Louis Fed
President James Bullard and New York Fed President William Dudley
both speaking about monetary policies. The speeches come a day
ahead of Fed Chairman Ben Bernanke's testimony to Congress.
"Markets remain jittery about the potential for the tapering of
asset purchases ahead of Chairman Bernanke's testimony to Congress
on Wednesday," analysts at Barclays said in a note.
"Comments by Chicago Fed President [Charles] Evans, consistently
one of the most dovish FOMC participants and a voter in 2013, were,
in our view, balanced, but will likely do little to ease market
fears. Although he said he sees labor markets as having improved
and expects the economy to reach 'escape velocity' in 2014, he also
said it is too early to determine if economic improvements will
prove durable," they added.
U.S. stocks opened higher on Wall Street.
Movers
Back in Europe, shares of cruise-ship operator Carnival PLC
(CCL) sank 5.8% after the firm late Monday slashed its full-year
guidance, saying ticket pricing has led to lower-than-expected
revenue yields.
Car makers also posted some of the biggest losses, pausing after
the prior day's rally when an upgrade from Morgan Stanley sent the
sector higher.
Shares of Daimler AG lost 2% in Frankfurt, Porsche Automobil
Holding SE slipped 0.5% and Volkswagen AG fell 1.5%.
The DAX 30 index lost 0.1% to 8,446.88 after closing at an
all-time high on Monday.
Deutsche Bank AG (DB) further added pressure in Germany, off
2.4% after J.P. Morgan Cazenove cut the bank to neutral from
overweight.
In France, Renault SA shaved off 0.3% and Peugeot SA fell
0.2%.
The CAC 40 index traded 0.1% lower at 4,021.38.
The U.K.'s FTSE 100 index added 0.4% to 6,781.77, with mining
firms on the rise. Rio Tinto PLC (RIO) gained 2.6% and Anglo
American PLC climbed 3.6%.
Shares of Marks & Spencer Group PLC added 4.8%, after the
retailer reported full-year pretax results in line with
expectations.
Luxury retailer Burberry Group PLC (BURBY) gained 5.3% after
reporting a rise in full-year earnings and showing further signs of
recovery following a midyear profit warning in September.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires