By Shreyashi Sanyal
(Reuters) - Spanish stocks clocked their worst session in a month on Tuesday as heavyweight Santander (BME:SAN) led a slide among banks amid a disappointing round of earnings for the sector, while an encouraging outlook from Novartis kept healthcare shares afloat.
Spain's lender-heavy IBEX index fell 1.2%, its worst one-day percentage fall since March 24, while the STOXX 600 index dropped 0.4%.
Santander slid 6.0% after weaker trade in Brazil and the U.S. overshadowed a rise in first-quarter net profit on a strong performance in Europe.
The European banking index lost 2.2%, as more bleak earnings from the sector rolled in.
UBS Group AG (SIX:UBSG) shed 2.2% after the bank set aside more money to draw a line under its involvement in toxic mortgages, as it girds itself for the "hard" task of swallowing fallen rival Credit Suisse (SIX:CSGN).
"We're seeing widespread weakness in banking shares after Santander warned of a slowdown in the mortgage market," said Michael Hewson, chief market analyst at CMC Markets.
"While rising rates helped to boost its net interest margin, the flip side of that is the potential for higher borrower distress."
Hewson also noted the risk of higher impairments for the likes of HSBC (LON:HSBA), Lloyds (LON:LLOY) and NatWest (LON:NWG) Group, all of which are due to report in the coming weeks.
First quarter earnings for STOXX 600 companies are expected to fall 2.6%, compared to a decrease of 2.5% from a week earlier, according to Refinitiv data.
The STOXX 600 index is still tracking monthly gains of over 2%.
The European basic resources index slumped 3.0%, extending falls to the fifth straight day and touching its lowest level since late October.
Swedish copper miner Boliden tumbled 7.1% after posting first-quarter adjusted operating profit below market estimates.
The European Central Bank's (ECB) Chief Economist Philip Lane was reported saying interest rates will need to be raised again at the central bank's policy meeting next week, echoing a chorus of policymakers that have recently sounded hawkish.
Money markets are pricing in a 25 bps rate hike by the ECB on May 4.
In a bright spot, Novartis AG gained 4.0% as it raised its full-year earnings outlook following cost cuts and a breast cancer drug trial success, lifting healthcare stocks by 0.6%.
ABB climbed 3.5% as the engineering and technology group raised its full year outlook for sales and profit while reporting first-quarter results.
The broader Swiss Market index gained 0.4%, an outlier among European gauges on the day.