European shares flat as China-fuelled rally loses steam

By Pranav Kashyap

(Reuters) -European shares pared some losses on Wednesday, supported by a rise in basic resources, even as a rally stimulated by China's stimulus package showed signs of slowing down.

The pan-European STOXX 600 index was trading flat at 519.33, after losing 0.3% at the opening bell.

In Asia, Chinese stocks extended their stimulus-fuelled rally to a second day, while other markets struggled for direction. [MKTS/GLOB]

Sweden's benchmark OMXS 30 moved higher, ticking up 0.4% after its central bank cut its key interest rate to 3.25% from 3.50%, as expected and signals more easing ahead.

SAP declined 3.6% after a report said the German software developer was under investigation in the United States for alleged price-fixing. The stock weighed the most on the benchmark and dragged the technology sub-index <.SX8P> down by 0.7%.

The oil and gas sector led sectoral declines, losing 0.7% on worries that China's stimulus plans did not have enough to boost demand. [O/R]

Basis Resources helped to mitigate losses, gaining 0.2% as copper prices continued their rally, reaching over two-month highs in the afterglow of China's stimulus plans. [MET/L]

Gains in luxury stocks such as LVMH and Hermes also provided support.

France's CAC 40 ticked 0.4% lower after gaining more than 1% in the previous session. Data showed consumer confidence in the country increased in September. The country's employment data is due at 1000 GMT.

On Tuesday, China's central bank rolled out its most significant stimulus package since the pandemic, aiming to lift the economy out of its deflationary slump. This move sparked a rally in European equities, with French luxury stocks experiencing the greatest surge.

However, investors are shifting their attention to the U.S. economy's health. Overnight, data revealed an unexpected drop in U.S. consumer confidence for this month, marking the steepest decline since August 2021. As a result, traders are now factoring in a 60.4% chance of another substantial rate cut by the U.S. Federal Reserve.

"This combination of ... increased stimulus out of China and a dovish Fed is a good combination for risk assets," Elias Haddad, senior markets strategist at Brown Brothers Harriman said.

However, "the only risk is if the downturn in Eurozone economic activity is as severe as what the leading indicators are pointing, that's a headwind for European equities," he said.

Among other notable stock moves, Valmet Oyj surged 10.7% after the Finnish engineering company secured an order worth more than 1 billion euros in Brazil.

(Reporting by Pranav Kashyap in Bengaluru; Editing by Subhranshu Sahu and Nivedita Bhattacharjee)