European shares dragged down by energy stocks

The pan-European STOXX 600 ended 0.7 per cent down after adding 2.5 per cent over the past three days and reaching a more than one-month high on Wednesday

Europe's benchmark index dropped on Thursday, dragged down by energy stocks, after a three-day run of gains on hopes for a peak in interest rate policy tightening and eventual rate cuts.

The pan-European STOXX 600 ended 0.7 per cent down after adding 2.5 per cent over the past three days and reaching a more than one-month high on Wednesday.

During the week, inflation data out of the US and UK strengthened hopes that their central banks were done hiking rates. Investors are shifting focus to the euro zone's inflation figures on Friday.

A bit of profit-taking is going on after the wave of euphoria after lower-than-expected inflation led to quite a lot of optimism that perhaps rate cuts would come sooner rather than later, said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Also, clouds have been gathering over the euro zone economy for some time with Germany in particular facing a slowdown, Streeter said.

Energy stocks led sectoral declines with a 2.7 per cent drop, tracking weakness in crude oil prices on signals of higher supply in the US and expectations of weak energy demand in China.

Also dampening the mood was fresh data pointing to persistent problems in China's housing sector that could disrupt the top metal consumer's overall recovery.

The luxury goods sector eased 1.5 per cent.

Prominent names including Kering, and Richemont lost between 1.8 per cent and 2.7 per cent each. This followed Burberry's 11.1 per cent decline after the British luxury fashion brand said it was grappling with a slowdown in global spending on luxury and would struggle to meet its annual revenue forecast.

HelloFresh plunged 22.4 per cent to the bottom of the STOXX 600 after the German meal-kit maker cut its annual core profit outlook and narrowed revenue growth guidance.

German chemicals maker BASF shed 2.5 per cent after a Jefferies rating downgrade.

On the upside, Embracer added 3.2 per cent after the Swedish games developer posted a bigger-than-expected Q2 operating profit.

Siemens added 5.7 per cent after the trains-to-industrial software maker posted better-than-estimated Q4 industrial profit, helping Germany's DAX gain 0.2 per cent.