Feb 22 (Reuters) - European shares dropped on Wednesday as upbeat economic data spurred fears that interest rates could stay higher for longer, while investors stayed on the sidelines ahead of the release of minutes from the U.S. Federal Reserve's latest meeting.
The pan-European STOXX 600 index (.STOXX) closed 0.3% lower with focus on Fed minutes that could provide more cues on the monetary policy tightening path of the world's most influential central bank.
Banks (.SX7P) fell 1.6%, retreating from their over one-year high scaled in the previous session.
The basic resources sector index (.SXPP) shed 2.1% and energy stocks (.SXEP) fell 1.3% as commodity prices slid on rate-hike fears and concerns over the demand outlook from top consumer China.
Data on Tuesday showed that French and German economic activity retreated into a growth territory, while a rebound in the U.S. business activity also backed views that interest rates in both economies will remain higher for longer.
"Investors are waking up to a stark realisation that the Fed's work is not done, and that interest rates may have to be hiked even higher to cool inflation," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
"High hopes that the Fed could cut rates by the end of the year have been dashed, replaced by worries that up to three hikes in quick succession may be needed to tame the price spiral."
On Wednesday, data showed Germany's inflation rate showed no signs of easing at the start of the year, as energy and food price pressures remained high due to the war in Ukraine.
Still, European stocks have enjoyed a decent bounce so far this year, relative to their U.S. peers on better weather conditions, hopes that the euro zone economy will narrowly avoid a recession and a boost from China's reopening.
In earnings-driven moves, shares of BE Semiconductor (BESI.AS) jumped 10.2% after the Dutch chipmaking equipment supplier said the recent tensions between the United States and China have not affected its sales and orders.
Stellantis (STLAM.MI) added 2.2% after the carmaker said its operating profit grew 17% in the second half of last year on a strong product and pricing mix.
Fresenius SE (FREG.DE) slid 4.4% after the German healthcare group forecast a fall in 2023 profit, partly due to plans to cede strategic control over dialysis group Fresenius Medical Care (FMEG.DE).
French food group Danone (DANO.PA) rose 4.5% on saying it expects better margins this year even as soaring raw materials and energy costs pulled down its full-year 2022 operating margin.
Exchange operator Euronext (ENX.PA) fell 7.4% on stating it has submitted an indicative offer in a combination of shares and cash to buy fund distribution firm Allfunds (ALLFG.AS) for 5.5 billion euros ($5.84 billion).
($1 = 0.9418 euros)
