By Shreyashi Sanyal and Bansari Mayur Kamdar
(Reuters) -European shares slipped on Thursday after the European Central Bank (ECB) raised borrowing costs as expected and signalled more policy tightening in its fight against sticky inflation.
The continent-wide STOXX 600 index closed 0.1% lower after falling as much as 0.8% earlier in the day.
The ECB increased the deposit rate by 25 basis points to 3.5%, the highest level in 22 years. This was the central bank's eighth successive raise. Inflation in the euro zone is at 6.1%, more than three times the ECB's 2% target.
"It was fully expected, given that (ECB chief Christine) Lagarde had already said a couple of weeks ago that interest rates needed to be raised further to bring CPI back to target," said Stuart Cole, head macro economist at Equiti Capital.
"The real story for me is that the outlook for inflation was revised upwards too. Yes, the revisions are small, but they do suggest that we will see further rate rises before the ECB is willing to pause."
This arrives just as the U.S. Federal Reserve left interest rates unchanged on Wednesday but signalled increases totalling at least half a percentage point by the end of this year.
Rate-sensitive banks shed 0.8%, while the technology sector index fell 0.6%.
Markets are eying more economic data and updates from major central banks to help the STOXX 600 break out of the 1% trading range that it has been stuck in for nearly two weeks.
Healthcare stocks added 0.4%, with the defensive shares limiting losses on the broader index.
H&M rose 3.7% after the Swedish clothes group said June had started well.
British online fashion retailer ASOS (LON:ASOS) rallied 14.8% after it said its new strategy was starting to work as it returned to profitability.
Overall, the retail index climbed 0.3%
British technology company Halma (LON:HLMA) slid 3.4% as its annual margins outlook disappointed.
SoftwareOne shares surged 18.7% after Bain Capital Private Equity made an offer for the Swiss software management company, valuing it at 2.9 billion Swiss francs ($3.21 billion).
Informa Plc (LON:INF) advanced 3.4% after raising its annual profit and revenue forecast.