By Susan Mathew and Amy Caren Daniel
(Reuters) - European shares fell on Tuesday as a profit warning from chemicals giant BASF led to a slide in German shares, which were on course to post their biggest drop in two months.
The pan-European STOXX 600 index (STOXX) fell 0.7% by 0815 GMT, in line with its Asian peers and Wall Street overnight amid dimming hopes of a sharp interest rate cut by the U.S. Federal Reserve later this month.
German shares (GDAXI) tumbled 1.3%.
In the latest evidence of the U.S.-China trade war squeezing businesses, BASF (DE:BASFn) slumped 5.8% after warning that profit would fall below forecasts for the second quarter and the full year.
It cited the slowdown in global growth and the prolonged trade war as weighing on the agricultural sector as well as global auto production and sales.
The warning also led to a 2% drop in the shares of chemicals peer Bayer (DE:BAYGn) and pushed both Europe's chemicals (SX4P) and auto indexes (SXAP) 2% lower.
"There hasn't been any good news out of the auto sector now, so we have to see what kind of earnings companies like Daimler will release," said Connor Campbell, an analyst at Spreadex in London, adding that poor earning could spell out further pain for the DAX.
Also weighing was Deutsche Bank (DE:DBKGn), which resumed its slide and was last down 4.1%. It posted its worst day in five months in the prior session as investors questioned the bank's restructuring targets and its ability to make profits after it undertook a major overhaul.
Meanwhile, Apple suppliers Infineon (DE:IFXGn), ASM (AS:ASMI) and STMicroelectronics (MI:STM) slipped about 2% after Rosenblatt Securities on Monday downgraded Apple Inc's (O:AAPL) shares to 'sell' from 'neutral'.
Investors will be watching out for Federal Reserve Chair Jerome Powell's opening remarks on U.S. stress tests later in the day and a two-day testimony before Congress starting Wednesday for clues about a rate cut.
After a sharp sell-off in May due to an escalation in U.S.-China trade tensions, European shares have made a come back on hopes that major central banks around the world would adopt a looser monetary policy.
"The Fed meeting minutes on Wednesday will be parsed to gauge how close they are to doing anything. They are looking for signs that the jobs report hasn't knocked the Fed's plan of a rate cut," said Campbell.
Elsewhere, Nordic lender Danske Bank (CO:DANSKE), which has been struggling to restore trust among investors after disclosing a major money laundering scandal at one of its branches, cut its 2019 earnings forecast for the second time, sending its shares 2.5% lower.
Among gainers, Britain's Ocado (L:OCDO) rose 6.8% to top the STOXX 600 after the online supermarket and technology company said it was confident about its outlook, even though it reported a 46% fall in first-half core earnings.