By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets retreated on
Tuesday, after the seventh straight drop in German investor
confidence added to concerns about the country's economic
growth.
The Stoxx Europe 600 index fell 0.4% to close at 338.42,
breaking a two-day winning streak.
But Portugal's PSI 20 index took another battering, sliding 1.1%
to 6,111.85 and extending its monthly loss to almost 16%.
Shares of Software AG led losers in the pan-European index,
tanking 19% after the German software maker cut its 2014 outlook
for sales growth at its biggest business.
Banco Espírito Santo SA skidded for a seventh straight day, this
time down 15%, on continued fears about its exposure to its parent
company Espirito Santo International. ESI last week missed an
interest payment, triggering concerns about Portugal's banking
system and prompting a sharp selloff in the wider European
market.
Fears that a unit of Espirito Santo International may fail to
pay back a loan to Portugal Telecom SGPS added renewed pressure on
southern European stocks, sending Italy's FTSE MIB 1.3% lower to
20,422.95 and Spain's IBEX 35 index down 1.2% to 10,475.90.
German ZEW confirms weakness
Among other national indexes, Germany's DAX 30 index fell 0.7%
to 9,719.41, building on losses after ZEW said its indicator of
economic sentiment in Germany fell for a seventh straight
month.
The economic sentiment report comes after a string of weak
German data out over the past weeks, including disappointing
industrial production, worrying unemployment numbers and
unexpectedly weak trade figures. Read: Is Germany leading the euro
zone toward the no-growth cliff?
The euro (EURUSD) weakened after the ZEW report, trading at
$1.3577 from $1.361 ahead of the data.
U.K. inflation raises call for rate hike
Elsewhere, France's CAC 40 index lost 1% to 4,305.31 while the
U.K.'s FTSE 100 index dropped 0.5% to 6,710.45. The pound (GBPUSD)
rallied to $1.7157 in the U.K. after inflation data for June
climbed much more than expected and spurred calls for a rate hike.
At 1.9%, inflation is now inching close to the Bank of England's 2%
target. Read: Get ready for a November rate hike -- U.K. inflation
calls for BOE action
"The news will further fuel expectations that the Bank of
England will start rising interest rates sooner rather than later,
with November looking the most likely month for the first hike,"
said Chris Williamson, chief economist at Markit, in a note.
BOE Governor Mark Carney told the Treasury Select Committee that
he doesn't know when the first increase will come, but that the
timing will depend on the economic data.
In the U.S., Federal Reserve Chairwoman Janet Yellen's testimony
before Congress sent U.S. stocks lower. Read: Live blog and video
of Janet Yellen's appearance before Senate
European movers
Among movers in Europe's stock markets, shares of Imperial
Tobacco Group PLC (ITYBY) shaved off 3.7% after the company agreed
to buy Kool, Salem, Winston, Maverick and Blu eCigs brands and
other assets from Reynolds American Inc. (RAI) for $7.1
billion.
Shares of Danone SA in Paris picked up 0.9% after Morgan Stanley
lifted the food producer to overweight from equal weight.
Shares of H&M Hennes & Mauritz AB (HNNMY) added 0.6%.
The Swedish fashion retailer said total June sales rose 12% on the
year.
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