EUROPE’S main stock index notched its biggest one-day drop in over nine months on Tuesday, with miners and banks leading losses, as investors steered clear of risky assets owing to heightened tensions in the Middle East.

The pan-European Stoxx 600 closed 1.6 per cent down, touching its lowest level since March 7, in a broader market decline. Higher euro zone bond yields also pressured equities.

Basic resources fell 3.1 per cent, its biggest one-day decline since mid-August, as copper prices retreated on frail China factory data and a firm US dollar.

Banks lost 2.6 per cent, their biggest one-day drop since August, dragged by 3 per cent declines in Britain’s HSBC and euro zone’s largest bank BNP Paribas.

Among other sectors, automobiles, insurance and energy also lost around 2 per cent each.

Main indexes in Germany, France, Italy and Spain shed over 1 per cent each, tracking a global risk-off mood as the world awaited Israel’s response to Iran’s first-ever direct attack against the country.

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“There are upside risks relating to Middle East tensions and these will add to central banks’ caution, but we still see the ECB and Bank of England cutting rates from June,” Capital Economics chief global economist Jennifer McKeown wrote.

However, European Central Bank policymakers continued to make the case for a June rate cut as inflation remains on course to 2 per cent by next year, even if the price path still proves bumpy.

Earlier in the day, brokerages Morgan Stanley and Deutsche Bank said they expect the ECB to reduce borrowing costs by 75 basis points this year, on uncertainty over the US Federal Reserve’s rate cut outlook and sticky domestic inflation.

Investors’ confidence of early rate cuts had sparked a rally in the Stoxx 600 since late 2023, last seen hitting a record high earlier this month.

Focus is now on quarterly results, with earnings expected to decline 12.1 per cent in the first quarter year-on-year, fresh LSEG data showed.

Among individual movers, the world’s second largest steelmaker ArcelorMittal slumped 6.9 per cent following a Deutsche Bank rating downgrade to “hold” from “buy”.

Barry Callebaut jumped 6.7 per cent after Stifel upgraded the chocolate maker stock to “buy” from “hold”.

Fresenius gained 4.6 per cent after the German healthcare firm announced the launch of Tyenne in the US for treating chronic autoimmune diseases.

Danish insurer Topdanmark climbed 4.3 per cent following better-than-expected first-quarter profit and higher profit guidance.

Naturgy rose 3.4 per cent after holding vehicle Criteria confirmed talks with a potential investment group regarding the Spanish energy firm. REUTERS