- Energy stocks gain on higher crude prices
- Swiss National bank cuts interest rates to zero
- Stora Enso jumps after initiating review of forest assets
- Interest rate decisions in England awaited
June 19 (Reuters) - European shares lost ground on Thursday as fears of possible U.S. involvement in the Middle East conflict kept investors on the edge, while the Federal Reserve's inflation warning added to jitters.
The pan-European STOXX 600 was down 0.6% at 537.37 points at 0826 GMT, after touching its lowest in more than a month.
Trading is expected to be thin as U.S. markets are shut for a public holiday.
Israel and Iran's aerial attacks continued as U.S. President Donald Trump kept the world guessing about whether the U.S. would join Israel in air strikes on Tehran.
Markets are hopeful of talks between the U.S. and Iran, and between the European Union and Iran on Friday, leading to a potential de-escalation in tensions.
The conflict has impacted oil prices, which rose on the day and boosted the energy sector by 0.6%.
Conversely, travel and leisure stocks fell 1.5%, leading broader declines, as they took a hit from soaring oil prices.
The Euro STOXX Volatility index touched its highest level since May 23 and was last up 1.38 points at 23.78.
"Higher oil prices may have a lasting impact on inflation and subsequently the ECB's monetary policy and growth, but if they get to the point where the Strait of Hormuz is affected, the situation might be more complicated," said Jacobo Ortega, chief investment officer for Europe at Santander Asset Management.
Meanwhile, Fed Chair Jerome Powell said on Wednesday he expects "meaningful" inflation ahead due to U.S. tariffs, while projecting two interest rate cuts for 2025.
The mixed signals did not offer markets much clarity on how the Fed plans to navigate the uncertain economic environment.
"The markets are near the tops of February (when they reached a record high), so it makes sense to be more on a wait-and-see mode," Ortega said.
In Europe, the Swiss National Bank cut its interest rate to zero, as expected, while Norway's central bank delivered a surprise 25 basis point cut, its first reduction in five years.
Stocks in Norway were up 0.1%, outliers among broader declines.
The UK is expected to hold rates on Thursday.
Among stocks, Stora Enso jumped 17.8% to top the STOXX 600 after the Finnish forestry group said it was initiating a strategic review of its Swedish forest assets.
Manadatum dropped 5.3% to the bottom of the benchmark index after Altor cut its stake in the life insurance provider.
Reporting by Purvi Agarwal in Bengaluru; Editing by Sonia Cheema and Nivedita Bhattacharjee
Source: Reuters