European shares retreat after two days of gains

The pan-European STOXX 600 index ended 0.2 per cent, with most regional peers closing the session flat to slightly down

European shares pulled back on Thursday, following two sessions of gains, as investors took stock of the recent rally spurred by bets major global central banks would cut interest rates next year.

The pan-European STOXX 600 index ended 0.2 per cent, with most regional peers closing the session flat to slightly down.

The automobile and parts index and real estate stocks dropped the most, each down 0.8 per cent. Healthcare stocks bucked the trend to gain 0.2 per cent.

Germany's DAX index was 0.3 per cent lower as a survey showed retailers' sentiment in Europe's biggest economy sagged in December, with Christmas shopping failing to offer a boost and expectations for the coming months remaining gloomy.

Thursday's decline for European stocks after a slump in Wall Street's main indexes the day before, which stalled a sharp rally in global shares driven by bets for interest rate cuts by the Fed as early as March.

Investors' appetite for risk sent the STOXX 600 to an 11-month high last week and Italy's benchmark bond yield to its lowest level in 15 months on Thursday.

European markets are in the red as the prospect of a year-end Santa Rally starts to dim, said Joshua Mahony, chief market analyst at Scope Markets.

With markets already struggling to wrap their head around the continued efforts from Fed members to rein in rate cut expectations, the recent increase in energy prices does raise the risk of a resurgence for inflation going forward, Mahony added.

The ECB’s Vice President, Luis de Guindos, said on Thursday it was too early to talk about interest rate cuts.

An only marginal rise in U.S. weekly jobless claims underscored U.S. economic strength, helping Wall Street bounce back on Thursday.