By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets trimmed earlier
advances on Monday after a larger-than-expected drop in euro-zone
inflation reignited deflation fears, adding more pressure on the
European Central Bank to ease monetary policy at its meeting on
Thursday.
The Stoxx Europe 600 index climbed 0.2% to 334.38, after trading
as high as 335.94 ahead of the data.
The benchmark was lifted by a solid gain for Novartis AG (NVS),
up 3% after the drug maker said it will close its trial of a
heart-failure drug early because of the strength of the results so
far.
Also pushing higher, ING Groep NV gained 2.9% after the Dutch
bank said it will resume paying dividends in 2015.
More broadly, euro-zone consumer-price data were the main event
in Europe on Monday. Inflation fell to 0.5% in the currency union
in March, below analysts' expectations and marking the lowest level
since late 2009. Economists worry the euro zone may be heading for
deflation, which could put the region's fragile economic recovery
at risk. This has raised calls for the ECB to either cut rates or
launch new easing measures at its meeting on Thursday.
Meanwhile, the euro (EURUSD) has steadily increased against the
dollar, recently touching its highest level since 2011. That has
further added pressure on the ECB loosen policy.
ECB President Mario Draghi has consistently reassured listeners
that the euro zone isn't heading for deflation, but that the
central bank stands ready to act if needed. Howard Archer, chief
U.K. and European economist at IHS Global Insight, called the
inflation data "uncomfortable and unwelcome news for the ECB" and
said the decision on Thursday will be a close call.
"However, the general impression we get from ECB officials'
comments is that the they don't believe circumstances warrant
policy action at this stage, and we still think it is more likely
than not that the ECB will sit tight," he said.
Data out on Friday showed Spain fell into deflation in March, as
high unemployment and weak demand for goods among households and
businesses added pressure on consumer prices.
After the euro-zone-wide data on Monday, most major European
stock indexes traded higher, although coming off their intraday
highs. The U.K.'s FTSE 100 index gained 0.2% to 6,630.59, while
Germany's DAX 30 index picked up 0.1% to 9,591.79. France's CAC 40
index was slightly lower at 4,410.52.
The German benchmark was also helped higher by a
stronger-than-expected report on retail sales for February, while
fourth-quarter economic growth in France was confirmed at 0.3%.
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