By Amruta Khandekar and Bansari Mayur Kamdar
(Reuters) - Euro zone shares posted their worst daily performance in six months on Thursday, after the European Central Bank delivered its fourth straight interest rate hike and said it expected to keep raising rates further, echoing hawkish commentary from the U.S. Federal Reserve.
Shares in the euro zone fell 3.1% to their lowest level in a month, while the broader STOXX 600 index posted its worst daily performance since May.
The European Central Bank raised interest rates by half a percentage point and, like the Fed on Wednesday, kept further hikes firmly on the table to bring runaway inflation under control.
"Anybody who thinks this is a pivot for the ECB is wrong," said ECB President Christine Lagarde at a news conference after the policy meeting.
"It is pretty much obvious that on the basis of the data that we have at the moment, 'significant rise at a steady pace' means that we should expect to raise interest rates at a 50-basis-point pace for a period of time."
Money markets immediately moved to price in a peak deposit rate of just over 3% by July, compared to 2.75% before the meeting.
The ECB also laid out plans to shrink its 5 trillion euros ($5.3 trillion) worth of bond holdings from March, in its next step towards tighter policy as it battles decades-high inflation.
"Even though the hike itself was as expected and slower than it was in the previous months, the communication around the decision was decidedly more hawkish than so many in the market may have expected," said Bas van Geffen, senior macro strategist at Rabobank.
Earlier in the day, the Bank of England also raised interest rates by 50 basis points, which was in line with expectations, and said further increases might be needed to curb persistent inflation.
The UK's blue-chip FTSE 100 was down 0.9%, while the mid-caps index shed 0.8%.
Industrial stocks weighed on the STOXX 600, alongside rate-sensitive tech stocks that fell 4.7%.
Banks shed 2.6%.
The banking sector was also dragged down by a 1.0% fall in HSBC (LON:HSBA) after a small group of its Hong Kong-based retail investors launched a renewed campaign, calling on the lender to restore its pre-pandemic dividend and set a plan to spin off assets.
H&M fell 6.9% and weighed on the retail sector, after quarterly sales of the world's second-biggest fashion retailer failed to match a recent pick up in expectations of some analysts.
Shares of Beijer Ref plunged 12.0% to the bottom of the STOXX 600 after the Sweden-based tech firm signed a binding agreement to acquire heating and ventilation products provider Heritage Distribution.