STOXX 600 dragged down by energy stocks, snaps 5-day gains

The pan-European STOXX 600 index closed 0.5% lower, erasing early gains and declining from the near three-week high reached earlier in the day

Europe's main stock index snapped a five-day winning streak on Tuesday, dragged down by heavyweight energy stocks, with investors weighing domestic economic data and bracing for this week's meeting of central bankers in Jackson Hole, Wyoming (US).

The pan-European STOXX 600 index closed 0.5% lower, erasing early gains and declining from the near three-week high reached earlier in the day. All the regional bourses also slid into negative territory.

An early decline in oil prices knocked the energy sector down 2% to a more than one-week low, even though the commodity's prices rose gradually during the day.

Both the STOXX 600 and blue-chip STOXX50E are more than 7% higher so far this year, having survived a recent bout of volatility that saw the benchmark index slid below the key 500-point mark at the month's start on concerns over a potential US recession.

Goldilocks thematic and expectations that the Fed is closer to pivot is fuelling the risk-on sentiment, according to OCBC strategists.

Potentially, mild unwinding of risk-on positions is not ruled out as we progress on the week, they added.

Investors are now on the lookout for minutes from the Fed's July policy meeting on Wednesday and comments by the central bank's Chair Jerome Powell at the Jackson Hole conference in Wyoming on Friday.

Any concrete hints on US rate cuts will provide a fresh boost to risk assets globally amid lingering fears over the world's biggest economy's performance, although such fears appear to have eased off of late.

Among major single movers, SalMar declined 7.4% after the Norwegian salmon farmer posted operating profit below estimate and cut its Iceland harvest outlook.

BT dropped 6.4% as its existing partner TV company Sky is set to launch its broadband services on internet provider CityFibre's network, in a blow to the telecom giant.

Danish medical equipment maker Coloplast declined 5% after reporting third-quarter earnings.

Luxury and automobile stocks were among the rare bright spots.