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Europe Markets: European stocks drop but pare losses amid inflation jitters

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European pared losses by the afternoon on Thursday, in a move that earlier in the day saw investors play catch up to heavy selling on Wall Street sparked by surging consumer price inflation.

The Stoxx Europe 600 index
SXXP,
-0.08%

fell 0.3% to 436.42, after a 0.3% gain on Wednesday. The German DAX
DAX,
+0.36%

was flat along with the French CAC 40 index
PX1,
+0.23%

and the FTSE 100 index
UKX,
-0.51%

was off 0.9%. Markets in Sweden and Switzerland were among those closed for the Ascension Day holiday.

The Dow industrials
DJIA,
+1.31%

were rebounding after skidding 681.50 points to 33587 on Wednesday, while the S&P 500
SPX,
+1.21%

and Nasdaq Composite
COMP,
+0.92%

bounced 0.7% each after losses the prior session. Investors took another round of U.S. inflation data in stride, as April’s producer-price index jumped 0.6%, above forecasts for a 0.3% rise. 

Investors got spooked on Wednesday by a report showing U.S. inflation in the year to April climbed at its fastest pace in roughly 13 years, sparking fears of an overheating economy.

“You may get dull periods but this year is going to be a big battle between the bullishness of mass reopening/stimulus on one hand and the inflationary consequences on the other. Expect regular pockets of vol. [volatility],” said a team of Deutsche Bank strategists led by Jim Reid, in a note to clients.

Rising energy prices were a contributor to that U.S. inflation spike, though crude
CL.1,
-3.15%

and Brent futures
BRN00,
-2.84%

were both off more than 2%, a day after marking their best settlements since March. Shares of major energy companies Total
TOT,
+0.77%

FP,
-1.18%
,
Royal Dutch Shell
RDSA,
-1.33%

RDS.A,
+0.20%

and BP
BP,
-2.14%

BP,
-0.21%

tracked those losses.

U.S. gasoline 
RBM21,
-2.64%

 prices topped $3 a gallon on Wednesday for the first time in more than six years, as a cyberattack on a major U.S. fuel artery — Colonial Pipeline — continued to cause fuel shortages at gas stations across the Southeast. Operations were restarted on Wednesday, but the company said it would take time to get the situation back to normal.

Mining stocks fell in step with weak iron ore prices. Shares of Rio Tinto
RIO,
-3.42%

RIO,
-2.96%
,
Anglo American
AAL,
-3.76%

AAL,
-3.76%

and BHP
BHP,
-3.52%

dropped 3% each. Moves earlier in the week by several Chinese commodity exchanges to lift trading and margin limits on iron ore contracts had failed to cool prices.

Elsewhere, shares of Telefónica
TEF,
+0.31%

TEF,
-0.86%

climbed over 3%. The Spanish telecom group posted a profit rise, though revenue dipped, and it said it expects to meet 2021 guidance.

Shares of Burberry
BRBY,
-3.28%

slumped 7% for the Stoxx 600’s worst performer. The luxury retailer said operating profit more than doubled in fiscal 2021, well ahead of market views, with sales lifted by China and the U.S.

“A weak wider market and some elements of profit-taking have made for an ugly start for the shares in response to the results. While this update will reassure bulls of the stock, given the recent strength of the price performance, the shares are seen as being up with events for now, with the market consensus coming in at a hold,” said Richard J. Hunter, head of markets at Interactive Investor.

Software and technology companies got a lift as U.S. tech stocks rebounded, with semiconductor company ASML Holding
ASML,
+3.05%

up 2.5% and software company SAP
SAP,
+1.44%

SAP,
+1.60%

rising 1.2%.

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