European stocks pare gains after ECB hike, MidEast tensions intensify

By Utkarsh Hathi and Johann M Cherian

The STOXX 600 index pared gains on Thursday after the European Central Bank raised interest rates for the first time in nearly three years and as U.S. President Donald Trump said tensions were likely to escalate in the Middle East.

The ECB increased borrowing costs by an expected 25 basis points, raised its forecast for inflation and cut its outlook for economic growth as the region grapples with an oil shock stemming from the ongoing Middle East conflict.

The rate-sensitive financial services sector slipped 0.4%, with asset managers ICG PLC and Partners Group down 4.2% and 2.2%, respectively.

Real estate stocks also dropped 0.6% as short-term German bund yields edged higher.

"The bigger question is what happens from here on," said Sandra Horsfield, an economist at Investec.

"Our expectation is that the ECB would not have gone through with a hike if they thought just one hike would do the job to contain longer-term inflation pressures."

Traders continue to expect borrowing costs to rise another 25 basis points before the end of the year, according to LSEG-compiled data.

Meanwhile, President Donald Trump said the U.S. will hit Iran "very hard tonight" and will soon take control of the Middle Eastern country's oil and gas infrastructure and markets.

The broader pan-European STOXX 600 index pared gains on his comments before recovering. The index was last up 0.6% at 622.17 points by 1254 GMT.

Crude prices were last up nearly 1% at $93 a barrel as his remarks dampened hopes for an imminent end to the war.

Global tech stocks were rocked by concerns of hefty AI spending after Oracle forecast higher-than-expected capital spending. Further, UBS downgraded European IT stocks to "neutral" from "attractive", citing elevated valuations and "AI returning to the fore".

European software stocks such as SAP SE dropped 4.6%, Capgemini fell 4% and Dassault Systemes declined 3%.

On the flip side, semiconductors did well, with BE Semiconductor and ASM International gaining 5.7% and 3.5%, respectively, as investors expect the sector to benefit from the AI boom.

The broader tech sector has seen some volatility since late last week as AI stocks globally have paused from a strong rally over the past two months.

Hugo Boss rose 9.6% after the UK's Frasers Group launched a €2 billion ($2.31 billion) takeover offer for the struggling German fashion brand.

Among others, Wizz Air shares jumped 5.2% after the firm's annual profit beat estimates. However, the carrier did not provide a forecast for fiscal 2027, citing an uncertain outlook.

($1 = 0.8660 euros)

(Reporting by Utkarsh Hathi and Johann M Cherian in Bengaluru; Additional reporting by Sophie Kiderlin; Editing by Rashmi Aich, Harikrishnan Nair and Devika Syamnath)

Copyright Reuters or USA Today Network via Reuters Connect.

This story was originally published June 11, 2026 at 8:13 AM.