By Ankika Biswas and Khushi Singh
(Reuters) -Europe's benchmark stock index dropped on Monday, led by miners, with investors bracing for crucial inflation reports throughout the week for further clues on the timing of interest rate cuts by major central banks, including the European Central Bank.
The pan-European STOXX 600 closed 0.4% lower. So far in 2024, it has gained 3.4%, even closing at an all-time high on Friday, driven by stubborn expectations of early policy easing and a resilient earnings season.
The continent's top economy Germany's benchmark DAX hit a fresh record intraday and closing high, boosted by a 2.8% rise in defence firm Rheinmetall.
However, the lack of a substantial AI-driven rally and economic concerns have prompted the flagship STOXX 600 to lag its U.S. peer S&P 500's 6.7% jump during the same period.
"At some point this rally is going to be overextended and the fundamental sustainability will be questioned," said Daniela Hathorn, senior market analyst at Capital.com.
"Markets want to see the disinflation process continue. There's greater weight on the ECB cutting rates before other central banks like the Fed and the Bank of England."
A sustained downtrend in euro zone inflation, with data due on Friday, could sharpen hopes of a near-term ECB rate cut and fuel further gains in equities. Traders, however, expect rates to remain steady at next week's March policy meeting.
ECB policymaker Yannis Stournaras noted the "optimal timing" for the first cut might be the end of the first semester if inflation continues to decelerate and wage data is supportive.
The Federal Reserve's preferred inflation measure - the core personal consumption expenditures price index, due Thursday - will also be assessed as traders continue to scale back expectations of U.S. policy easing.
Basic resources dropped 2.1% to a four-month low, spearheading sectoral declines, while technology rose 0.4%, led by a 6.5% jump in chipmaking parts supplier BE Semiconductor Industries.
Zealand Pharma leapt 35.7% after an experimental drug it is developing with Boehringer Ingelheim yielded what they described as "groundbreaking" mid-stage trial results in the treatment of fatty liver.
Sweden's Kinnevik gained 5.4% on plans to sell its entire stake in Tele2 (ST:TEL2b) to French investor Xavier Niel and his Iliad telecoms business. Tele2 shares were up 5.3%.
Bank of Ireland slumped 10.6% after a weaker-than-expected outlook from the country's biggest lender eclipsed a more than tripling of shareholder returns on the back of surging full year profits.
HelloFresh (OTC:HLFFF) lost 11.8%, with UBS flagging risks for the German meal-kit delivery firm's 2024 guidance ahead of earnings in March.