By Pranav Kashyap and Avinash P
March 3 (Reuters) - European shares plunged to one-month lows on Tuesday as the global equities rout gathered pace, with investors staring down the prospect of a prolonged Middle East war, and the inflationary sting of a fresh jump in oil prices.
The pan-European STOXX 600 slid 2.6%, putting it on track for its steepest one-day drop since April. If the losses hold, the benchmark would be down roughly 4% across the past two sessions.
German stocks fell to their lowest
in nearly two months, France hovered near one-month lows, Spain touched an over two-month low, and London slipped to a two-week low.
Every sector of the STOXX 600 was dragged into the downdraft, led by financials. The banking index sank to a near three-month low, with UK-focused lenders, seen as more exposed to Middle East risk, taking the hardest hits. Insurance also slid, with the sector down 3.9%.
Even as oil marched higher, it offered little shelter for energy stocks that fell 1.1% - a reminder that higher crude can be as much a demand shock as a profit tailwind when investors are in full risk-off mode.
Travel names remained under heavy pressure. Lufthansa dropped 4%, while British Airways-owner ICAG fell 5.2% and Air France-KLM slid 5%.
The U.S. and Israel launched an air campaign against Iran on Saturday, striking Tehran and killing Iranian Supreme Leader Ali Khamenei. In response, Iran and its proxy Hezbollah retaliated, pulling the wider Gulf region deeper into the conflict.
OIL SPIKE STOKES INFLATION JITTERS
The fear in Europe was that an energy shock will rekindle inflation while squeezing already tepid growth. With the Strait of Hormuz closed to marine traffic, attacks have disrupted commercial shipping through the Gulf, an artery for the fuel and petroleum products Europe depends on.
That shock threatens to cloud the outlook for both the European Central Bank and the Bank of England.
"Much will depend on the price of oil. Any sustained spike would undoubtedly trigger a more meaningful risk-off move, but without that, markets are likely to revert fairly quickly to focusing on macro data and AI-related themes," said Deutsche Bank's Jim Reid.
European Central Bank Chief Economist Philip Lane told the Financial Times that a prolonged war could significantly push inflation higher and weigh on euro zone growth.
Reflecting the rising unease, Europe's volatility gauge, the STOXX volatility index, jumped for the fourth session, to its highest level since mid-November.
Investors also had one eye on the data calendar. Consumer price figures due later in the day are expected to show inflation in the bloc held steady.
Lottomatica shares rose 4.8% after the Italian betting firm forecast 2026 adjusted core earnings of 940 million euros to 980 million euros, above last year's 856 million euros.
Naturgy shares declined 7.5% after BlackRock sold its remaining 11.4% stake in the Spanish energy company at a discount through an accelerated bookbuilding.
(Reporting by Avinash P and Pranav Kashyap in Bengaluru; Editing by Mrigank Dhaniwala and Maju Samuel)
