Europe stocks struggle ahead of economic data

The pan-European STOXX 600 index was flat, with German stocks edging up 0.2% to reach a record high, building on the positive momentum on interest rates after inflation eased

Europe stocks struggled for direction on Tuesday as investors remained cautious ahead of a raft of economic data in the run-up to the U.S. jobs report on Friday, while German stocks hit all-time highs.

The pan-European STOXX 600 index was flat, with German stocks edging up 0.2% to reach a record high, building on the positive momentum on interest rates after inflation eased.

We saw a little bit of indecision in the decks yesterday, a bit of rebalancing there, but we still have some positive momentum in European stocks, as per Daniela Hathorn, senior market analyst at Capital.com.

I think there is going to be a lot of emphasis on this August U.S. payrolls data. It might not provide any surprise or any insights, and it may just continue showing the current trend, but I think investors are very wary going into it, Hathorn said.

Rolls-Royce provided the biggest boost to the industrial sector with a 4.4% gain as the British aerospace and defence company sought to recover from its biggest one-day drop this year following news of an engine component failure at Cathay Pacific Airways.

Cathay Pacific said three of the 48 Rolls-Royce-powered planes it had inspected had gone through successful repairs and all of the jets were expected to resume operation by Saturday.

Investors will closely monitor comments from ECB policymakers Claudia Buch, Jose Manuel Campa and Kerstin Jochnick through the day for any signals on the central bank's next move on September 12.

Money markets currently see a full possibility of a 25bp rate cut by the European Central Bank, while pencilling in a total easing of 57 basis points until the end of 2024.

U.S. ISM manufacturing reading for August is due at 1400 GMT.

Traders feel that stocks will struggle to find momentum before the U.S. non-farm payrolls (NFP) data on Friday that will be crucial for the quantum of the Fed's rate cut in September.