European shares buck global rally as financials, auto stocks drag

By Pranav Kashyap

(Reuters) -Financials and auto stocks weighed European shares down on Thursday, bucking a global rally sparked by the U.S. Federal Reserve opening the door to easing in September.

The pan-European STOXX 600 index lost 0.5% by 0825 GMT, after touching a two-week high in the previous session.

The banking sector fell the most, dropping 2.3% following Societe Generale 7.5% decline after the French lender reported its second-quarter results.

The auto sector lost 2% following a 4.5% slump in BMW after reporting lower-than-expected quarterly profit margins in its auto business.

Volkswagen, Europe's top automaker, fell 2.4% after reporting a 2.4% drop in its second-quarter operating profit, while Daimler Truck lost 3.1% after cutting its full-year revenue outlook.

Those results pulled the German DAX down 1.2%.

On the economic data front, Euro zone manufacturing activity remained mired in contraction in July. Purchasing Managers' Index (PMI) held at June's 45.8 in July. Germany's manufacturing sector continued its downturn - it fell to 43.2 in July from 43.5 in June.

France's manufacturing sector contracts slightly more than expected in July - it slid to 44.0 points in July from 45.4 in June.

The Fed kept its benchmark overnight interest rate in the 5.25%-5.50% range as it ended its two-day policymaking meeting on Wednesday, but opened the door to rate cuts next month.

The European Central bank meets one week before the Fed does in September and is expected to deliver its second rate cut.

"They're (ECB) not going to be too concerned now about what the Fed does. They're now gearing up for another cut in September," Daniela Hathorn, senior market analyst at Capital.com said.

"Everyone's on the same mindset. They want to start cutting and ease that pressure on their respective economies,".

Meanwhile, all eyes are on the Bank of England that meets later in the day. The expectations of a rate cut by the BoE today, once a coin-flip, now has increased to more than 60%.

London's benchmark FTSE 100 was flat.

Among other notable stock moves, Rolls-Royce surged 9.4% after the aerospace engineer raised its profit guidance and resumed its dividend payouts.

Anhueser-Busch InBev rose 2.3% after the beer giant reported a forecast-beating core profit for the second quarter.

Next jumped 8.3% after the British clothing retailer raised its full year profit outlook.

(Reporting by Pranav Kashyap in Bengaluru; Editing by Savio D'Souza and Nivedita Bhattacharjee)