European shares retreated further from five-month highs on Thursday before a European Central Bank meeting that is expected to slash growth forecasts and hint at a new round of ultra-cheap loans for euro zone banks. The pan-European STOXX 600 index was down 0.3 percent by 0937 GMT, while Germany's DAX fell 0.5 percent and London's FTSE 100 was down 0.4 percent.
Euro zone banks fell 0.4 percent on profit taking after gains made in anticipation of the ECB scheme and as investors awaited for details on the loans that could prop up lending and help banks roll over a previous facility. "It seems all but certain that the ECB will need to relaunch these loans this year, although it may choose to hold fire at this meeting," said Neil Wilson, analyst at Markets.com.
UniCredit analysts said a formal announcement on the loans with technical details might only come in April. Italian banks, which used the biggest share of the previous round of central bank loans, edged up but remained below the highs hit in the previous session. Intesa Sanpaolo rose 0.3 percent after reports that the country's largest retail bank is in talks to sell about 10 billion euros in impaired loans, signalling more progress in Italian banks' effort to clean up their books.
The export-oriented auto sector, down 1.7 percent, continued to slide on worries over the sector's prospects amid slowing Chinese growth. German carmakers Daimler and BMW fell 2.2 and 1.4 percent following a downgrade from Bankhaus Lampe to hold and sell respectively.
"Daimler is facing a much tougher market environment than in the past. Car sales seem to have peaked and global trade wars are adding additional uncertainty and risk to the sector," said Bankhaus Lampe analyst Christian Ludwig. On BMW, which is due to release its annual report on March 20, he said: "We believe the market will be disappointed by the outlook for 2019."
Basic resources stocks were also under pressure, down 1.9 percent, as copper prices fell, while gains in defensive sectors like telecoms and utilities, which are favoured in time of economic uncertainty, were not enough to offset broader market weakness. The STOXX 600 is up nearly 11 percent so far this year, having rebounded from a sharp sell-off at the end of 2018 but investors expect the potential for more gains this year is limited by political risks and slowing growth.
Elsewhere, earning drove the biggest share price moves. A weak outlook sent shares in German publisher Axel Springer to the bottom of the STOXX, down 8 percent to a two-year low, while in-line results and a share buyback announcement sent brewer Royal Unibrew up 4.9 percent. Britain's Melrose rose 3.6 percent after the turnaround specialist's full-year profits rose, boosted by last year's hostile takeover of British engineer GKN, beating analyst expectations.