Risk-off mood hits European shares; Sino-U.S. tensions weigh

By Bansari Mayur Kamdar

(Reuters) -European shares fell on Tuesday as weak global factory data fanned economic slowdown fears, while markets were on edge as U.S. House of Representatives Speaker Nancy Pelosi was expected to visit Taiwan.

The pan-European STOXX 600 slid 0.6% in morning trade.

Pelosi was set to visit Taiwan on Tuesday, three sources said, as the United States said it wouldn’t be intimidated by Chinese threats to never “sit idly by” if she made the trip to the self-ruled island claimed by Beijing.

“After the best month for Stoxx 600 in July, European equities are giving back some of those gains to kick off August suggesting the rally was slightly overdone,” Victoria Scholar, head of investment at Interactive Investor, said.

“Although Pelosi’s visit could create a deeper strain between Beijing and Washington it is unlikely to result in actual military conflict.”

Global markets were jittery, with MSCI’s broadest index of Asia-Pacific shares ex-Japan down 1.3%, while U.S. futures pointed to a lower open.

In Europe, semiconductor stocks such as ASML Holding, ASM International, BE Semiconductor and STMicroelectronics fell between 0.6% and 3.6%.

“Most of the chip production happens in Asia. If you get a conflagration between China and the U.S., that’s going to increase geopolitical uncertainty in that region,” said Michael Hewson, chief market analyst at CMC Markets UK.

Meanwhile, Moody’s Investors Service flagged an increased risk of stagflation in European Union countries.

European stocks ended lower in the previous session as energy shares fell following a drop in crude prices after weak factory data across the United States, Europe and Asia rekindled demand concerns.

The energy sector got a boost on Tuesday following strong results from BP, with the London-listed oil major up 4% as it reported a second-quarter profit that beat estimates.

(Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Shounak Dasgupta)

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