By Shashwat Chauhan and Amir Orusov
(Reuters) -European shares fell on Wednesday with financials leading losses, tracking declines on Wall Street after Federal Reserve Chair Jerome Powell's remarks, though
gains in defence-related stocks helped limit the damage.
The pan-European STOXX 600 was down 0.3% at 553.2 points, as of 0829 GMT. Most regional bourses also ticked lower, with the Italian benchmark at the helm of losses, down 0.4%.
Heavyweight banks dropped 0.8%, with Denmark's Sydbank and UK's Barclays down about 2% each. Germany's Deutsche Bank and Spain's BBVA fell about 1% each.
The subindex for financial services dipped 1.2%.
Healthcare stocks slipped 0.6%, with heavyweights AstraZeneca and Roche down about 1% each.
Wall Street's main indexes fell overnight as investors parsed through Fed Chair Jerome Powell's remarks, which gave little indication about the future path of interest rates.
"When Powell reminded investors on Tuesday that further cuts are not guaranteed, markets recoiled," BCA Research analysts said in a note.
Still, traders expect the U.S. central bank to cut interest rates in the remaining two meetings of the year, with odds of an October reduction at more than 94%, according to the CME FedWatch Tool.
The Fed cut its main lending rate for the first time in 2025 last week, spurring a rise in global risk assets including European stocks.
After a bumper start to the year on the back of a strong run in defence companies, European shares have fallen behind their U.S. counterparts as an unrelenting rally in AI-related stocks has pushed Wall Street to record highs.
The STOXX 600 sits about 2% away from its all-time highs seen back in March and is up about 9% so far this year. The S&P 500 has jumped more than 13%.
Defence stocks gained 1.3% on the day, hovering near their all-time highs, after U.S. President Donald Trump said he believed Ukraine could retake all its land occupied by Russia and that Kyiv should act now.
Swedish defence equipment maker Saab topped the STOXX 600 with a 4.9% gain, followed by Germany's Hensoldt which rose 4.5%.
Languishing at the bottom, Lanxess and Evonik fell 6% and 1.9%, respectively, after Deutsche Bank downgraded its rating on the German chemical companies to "hold" from "buy".
Among economic data, a survey showed German business morale unexpectedly declined in September, as the economic outlook remained weak.
(Reporting by Shashwat Chauhan in Bengaluru and Amir Orusov in Gdansk; Editing by Mrigank Dhaniwala)
