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European shares deepen losses as ECB signals more rate hikes

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European shares deepened losses on Thursday, after the European Central Bank delivered its fourth straight interest rate hike and said it expected to keep raising rates further, echoing hawkish commentary from the U.S. Federal Reserve.

Euro zone shares fell 1.7% to a session low, while the broader STOXX 600 shed 1.6%.

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The European Central Bank

raised interest rates

by half a percentage point and, like the Fed on Wednesday, kept further hikes firmly on the table to bring runaway inflation under control.

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It also laid out

plans to shrink

its bloated balance sheet from March.

“Even though the hike itself was as expected and slower than it was in the previous months, the communication around the decision was decidedly more hawkish than so many in the market may have expected,” said Bas van Geffen, senior macro strategist at Rabobank.

Earlier in the day, the Bank of England also raised interest rates by 50 basis points, which was in line with expectations, and said further increases might be needed to curb persistent inflation.

UK’s blue-chip FTSE 100 was down 0.5%, while the mid-caps index shed 0.6%.

On the STOXX 600, rate-sensitive tech stocks led declines, falling 2.5%, while banks shed 1.7%.

The banking sector was also dragged down by a 1.7% fall in HSBC after a small group of its Hong Kong-based retail investors launched a renewed campaign, calling on the lender to restore its pre-pandemic dividend and set a plan to spin off assets.

H&M fell 4.7% and weighed on the retail sector, after quarterly sales of the world’s second-biggest fashion retailer failed to match a recent pick up in expectations of some analysts.

Shares of Beijer Ref plunged 11.2% to the bottom of the STOXX 600 after the Sweden-based tech firm signed a binding agreement to acquire heating and ventilation products provider Heritage Distribution.

(Reporting by Amruta Khandekar; editing by Anil D’Silva and Saumyadeb Chakrabarty)

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