By Shubham Batra
(Reuters) -European shares rose on Wednesday on optimism that the U.S. Federal Reserve could hint at a future pause in its tightening cycle due to resurfacing banking sector worries and a potential debt default.
The pan-European STOXX 600 index climbed 0.4%, after a sharp selloff in the previous session.
Food and beverages gained the most on the index, rising 1.2%, while oil and gas shares extended losses from Tuesday, falling 0.4%.
Automobile shares fell 0.5%, led by Stellantis, the world’s third-largest carmaker by sales, which slumped1.9% after its inventories rose in the January-March period as logistic problems were still being resolved, weighing on its market share.
Investors anticipate that the Fed will follow through with a quarter percentage point hike later in the day.
The statement is due to be released at 2 p.m. ET (1800 GMT), with Chair Jerome Powell scheduled to speak to reporters half an hour later.
The demise of First Republic Bank, the third U.S. bank to collapse since March, again triggered concerns about the health of other mid-sized lenders, although European banks have so far been relatively unscathed.
Data on Tuesday showed banks are sharply turning off credit taps, making a case for a smaller hike by the European Central Bank on Thursday.
“Following the Bank Lending Survey, the case is strengthening that the ECB will ‘only’ deliver 25 basis points this week and may not reach 3.75%,” Commerzbank Research strategists said in a note.
“Powell may still question the rate cuts the market is pricing after today’s meeting.”
Italy’s UniCredit was the top gainer on the index, jumping 5.8% as the lender raised its financial targets for the year after it posted stronger-than-expected first-quarter earnings.
Deutsche Post added 1.6% after the German logistics company reported first-quarter operating profit above expectations.
Signify, the world’s biggest lighting maker, dropped 8.3% on missing quarterly core profit expectations as lower consumer demand persisted, but said it expected improvement in the second half of the year.
Airline shares were dragged by Deutsche Lufthansa AG, which fell 4.8% after its reported revenue below market expectations.
Euro zone’s unemployment data for March, due at 0900 GMT, will be on investors’ radar for more clues on the strength of the region’s labour market.
(Reporting by Shubham Batra in Bengaluru; Editing by Sonia Cheema)
