By Pranav Kashyap and Avinash P
March 19 (Reuters) - European shares slid to a near two-week low on Thursday, as the escalating conflict in the Middle East drained appetite for risk ahead of the European Central Bank's policy decision.
The pan-European STOXX 600 fell 2% to 586.05 points by 0934 GMT, led lower by industrial stocks, which were the biggest drag on the benchmark.
Selling pressure swept across the region in step with weaker Asian markets. Bourses in Frankfurt, Madrid and London fell more
than 2%, while Paris and Milan were down more than 1%.
Norway, however, climbed 1.2% to a fresh record high, extending its winning streak to a seventh straight session.
Almost every major sub-sector was trading in negative territory. Miners shed 5% as gold prices retreated, while weakness among several heavyweight financial stocks added to the market's woes.
Europe's fear gauge index firmed for the second straight session.
A modest rebound early in the week faded as the intensifying U.S.-Israel war with Iran weighed on sentiment.
Iran attacked energy facilities across the Middle East following Israel's strike on its major South Pars gas field, pushing oil prices higher and reinforcing fears of a prolonged conflict.
"This buy-the-dip situation is nice, we're not sure there's enough money and confidence right now to drag markets upward," said Michael Field, chief European equity strategist at Morningstar.
"That just shows you the lack of clarity that we have."
MARKETS LESS INCLINED TO 'BUY THE DIP'
The European Central Bank is widely expected to keep interest rates unchanged at 2% later in the day, but investors will watch for comments on how surging oil prices could affect growth and the outlook for borrowing costs.
At one stage, investors had been pricing in a prolonged pause from the ECB through 2026. That view has shifted dramatically, with markets now pricing in at least two 25-basis-point rate hikes by the end of this year, according to LSEG data.
That repricing comes as Europe remains heavily exposed to Middle East energy supplies while already facing a cloudy economic outlook.
Analysts say the change in rate expectations could further dent risk appetite in the near term, making investors less inclined to "buy the dip."
Interest rate decisions are also due in London, Zurich and Copenhagen. Sweden held rates steady, citing the Middle East conflict as a major source of uncertainty.
Overnight, the U.S. Federal Reserve left rates unchanged, projecting higher inflation amid elevated uncertainty as policymakers assess the fallout from the conflict.
Among individual stocks, Infrastrutture Wireless Italiane tumbled 18% after Telecom Italia and Fastweb announced they will build up to 6,000 telecom towers in Italy, in a potential blow for the country's top mast operator.
(Reporting by Avinash P in Bengaluru; Editing by Mrigank Dhaniwala and Eileen Soreng)
