European shares post biggest drop in two weeks on oil surge, rate-hike concerns

By Tharuniyaa Lakshmi, Purvi Agarwal and ‌Niket Nishant

July 23 (Reuters) - European ​shares suffered ​their steepest one-day drop in over two weeks on Thursday, weighed down by lacklustre earnings, hawkish central bank commentary and elevated crude oil prices.

The pan-European STOXX 600 index fell 1.3% to ‌638.5 points. The index has struggled to break out of a narrow range this ⁠month as simmering tensions in the Middle East reinforce inflation fears.

While the European Central Bank kept interest rates unchanged on Thursday, markets perceived President ‌Christine Lagarde's comments as suggestive of ‌a potential hike in September.

"The ECB is clearly leaning hawkish. For all the data it will see and the analysis it will conduct between now and September, the decision will, to a large extent, come ​down to the trajectory of oil prices and conditions in the Middle East," said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics.

Brent crude futures hit $100 a barrel on Thursday, for the first time since ⁠May after Yemen's Houthis said they had attacked two Saudi oil tankers in the Red Sea, adding to concerns over global supply disruptions. The ​rise in crude prices lifted European energy shares up 1.54%.

Meanwhile, the food and beverage index fell 4.1%, weighed down by Nestle , whose shares tumbled nearly 8%, marking their biggest ​loss since 1989.

The company raised its full-year organic sales outlook ‌but said it would sell part of its water and premium beverages business to Platinum Equity.

Tech stocks slipped 2.9%, led by STMicroelectronics, which fell 17.7%. after the chipmaker forecast ⁠third-quarter revenue slightly below market expectations. BE Semiconductor dropped 7.3% after its second-quarter results.

Offsetting some losses was a near-22% surge in Soitec after its quarterly revenue beat expectations.

Sentiment towards tech stocks has been mixed, as investors have punished U.S. hyperscalers such ⁠as Alphabet for their rising AI spending, while beneficiaries of that spending are struggling with lofty valuations.

"You're seeing more questions being ​asked about where's the future revenue going to come from... twelve months ago the rage was about hyperscalers and the same questions were asked. Now, the semis came into the fall," said Rushabh Amin, multi-asset portfolio manager at Allspring Global Investments.

"Even if ‌you have decent earnings, there is a kind of drag coming from a slight unwind in sentiment and in positioning."

Among other stocks, TotalEnergies gained 2.5% after reporting its ‌strongest quarterly earnings in nearly three years, boosted by higher oil prices and robust refining margins.

Budget airline easyJet rose 2.7% ⁠despite a 70% drop in third-quarter profit.

Finnish forestry ‌group Stora Enso reported a quarterly ​operating profit below market expectations on Thursday, sending its shares down about 8.5%.

(Reporting by Tharuniyaa Lakshmi, Purvi Agarwal and Niket Nishant in Bengaluru; Editing by Amanda Cooper, Nivedita Bhattacharjee and ‌Diti Pujara)

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