STOXX 600 drops as financials drag on disappointing earnings

The pan-continent STOXX 600 index ended 0.5% lower after initially increasing to its highest in more than a week

Europe's benchmark stock index declined on Wednesday as financials sagged on disappointing earnings from Swedish lender Handelsbanken, while technology stocks limited losses after ASM International's strong forecast.

The pan-continent STOXX 600 index ended 0.5% lower after initially increasing to its highest in more than a week.

Bank shares shed 1.2% after Handelsbanken dipped 12.1% following a first-quarter net profit miss, while SEB lost 3.7% after posting weaker-than-expected interest income in the first quarter.

Financials led sectoral declines, down 2%, with Allfunds shedding 11% after a report that the fund manager abandoned talks over a potential sale.

UBS dropped 2.9% after the bank's executives flagged major concerns about the Swiss government's plan to hit it with tougher capital requirements.

Tech gained 1.3% after ASM International climbed 11% as the wafer-processing equipment supplier raised its second-quarter revenue forecast.

Of the 34 STOXX 600 companies that have reported first-quarter earnings, 61.8% exceeded estimates, compared with a long-term average of 54%, according to LSEG data on Tuesday.

Sentiment soured after Bundesbank President Joachim Nagel noted euro zone inflation could remain stubborn, so a possible interest rate cut by the ECB might not be followed by further policy easing.

The European Central Bank may potentially cut by 25 bps in June and then hold for a month or two in order to evaluate its impact, according to Daniela Hathorn, senior market analyst at Capital.com.

But out of the major central banks, the ECB looks the most likely to cut, she added.

European stocks had a stellar run in the past two quarters, before pausing in April as geopolitical tensions and concerns around a weak earnings season overshadowed optimism of an imminent rate cut.