By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets moved lower on
Tuesday after lackluster euro-zone inflation data strengthened the
case for the European Central Bank to bring in new easing measures.
Analysts noted, however, that the prospect of looser monetary
policy has largely been priced into the market.
The Stoxx Europe 600 index fell 0.5% to close at 343.48 after
posting a 0.2% advance on Monday.
Among notable decliners, shares of Davide Campari-Milano SpA
dropped 1.8% after Goldman Sachs cut the drinks maker to sell from
neutral.
Tesco PLC (TSCDF) dropped 1% after market researcher Kantar said
the U.K. retailer lost market share in the 12 weeks to May 25.
On a more upbeat note, shares of Wolseley PLC climbed 1.6% after
the distributor of heating and plumbing products reported strong
growth in the U.S. and the Nordics during the third quarter.
'Abysmal' euro-zone inflation data
More broadly, euro-zone inflation data for May were the main
event in Europe. The consumer-price index rose 0.5% last month,
down from 0.7% in April and falling short of analysts expectations.
Peter Dixon, strategist at Commerzbank in London, said the weak
inflation reading reinforced the view that the ECB will cut
interest rates at its meeting on Thursday and may even dump the
deposit rate into the negative for the first time.
"Basically, markets had already factored this in," Dixon said.
"We are two days from the meeting, so it doesn't make much sense to
take a position at this stage."
Many economists also expect the ECB to launch a package of
liquidity measures, possibly including a new round of long-term
refinancing operations. That could boost bank lending and so spur
growth and combat weak inflation levels.
With inflation now at 0.5%, growth in consumer prices has fallen
back to the four-year low it also touched in March. James Ashley,
chief European economist at RBC Capital Markets, called the May
data "abysmal," noting the March weakness was largely due to
distortions caused by the timing of Easter.
"This time, in our view, the 0.5% reading is a 'clean'
reflection of the dearth of inflationary pressures," Ashley said in
a note.
Eurostat released euro-zone unemployment data for April on
Tuesday, showing the joblessness level in the currency union fell
to 11.7% from 11.8% in March. Consensus was for a 11.8%
reading.
Most European equity benchmarks closed in the red, with
Germany's DAX 30 index down 0.3% to 9,919.74 and France's CAC 40
index giving up 0.3% to 4,503.69. The U.K.'s FTSE 100 index lost
0.4% to 6,836.30.
U.S. stocks also traded lower, with the S&P 500 index (SPX)
and the Dow Jones Industrial Average (DJI) struggling to build on
three straight days of gains.
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