By Sruthi Shankar
(Reuters) -European shares hit seven-month lows on Tuesday before recouping some losses, pressured by the prospect of harsh sanctions against Russia, which has ordered troops into two breakaway regions of eastern Ukraine.
The pan-European STOXX 600 index fell 0.6%, entering its fourth straight session of losses. The benchmark fell as much as 1.9% in early trading, putting it on the brink of correction territory from its all-time high.
The German DAX, seen as more vulnerable than other regional indices due to the country's heavy reliance on Russian gas supplies and lack of energy companies on the index, was hit the hardest, falling 0.9%.
The broader euro-zone stock gauge dropped 0.7%, while Britain's commodity-heavy FTSE 100 slipped 0.4%.
The United States and its European allies are poised to announce harsh new sanctions against Russia after President Vladimir Putin formally recognised two breakaway regions in Ukraine and signed a decree to deploy Russian troops there.
Oil prices rallied on fears of supply disruption, with Brent crude hitting its highest since September 2014 and heading towards $100 a barrel.[O/R]
Although oil & gas stocks surged 1.7%, investors feared stronger commodity prices would stoke more inflation in Europe.
"The implication for Europe would be mainly via gas and oil prices, but it is within Russia's interest to make sure that the disruption isn't too great. That's behind the muted market reaction for now," said Seema Shah, global chief strategist at Principal Global Investors.
A common gauge of volatility across euro zone equities eased after touching 39 points, its highest since June 2020, in the previous session.
Euro zone banks fell 1.0% as investors scaled back their expectations for a central bank rate rise in 2022, pricing in an around 95% chance of a 10 bps hike in July and of 40 bps hikes by the year-end. [GVD/EUR]
Shah said she has been sceptical of an ECB rate hike this year, given concerns about the strength of the European economy and added complications from the Russia-Ukraine situation.
Volkswagen (DE:VOWG_p) AG surged 9.1% and Porsche SE rallied 10.5% following news that the companies are in advanced discussions about a potential IPO of luxury carmaker Porsche AG.
French vouchers and cards provider Edenred (PA:EDEN) jumped 6.1% after reporting a record full-year core profit.
Meanwhile, German dialysis specialist Fresenius Medical Care fell 7.1% after its full-year earnings missed estimates due to a hit from the COVID-19 pandemic. (FMEG.DE)