By Ankika Biswas
European shares were subdued on Monday after a strong week driven by aggressive bets on interest rate cuts, with drugs-to-pesticides group Bayer sliding to a more than 14-year low and weighing on the healthcare sector and Germany's benchmark index.
The pan-European STOXX 600 was little changed by 0945 GMT after jumping nearly 3% last week.
As investors started pricing in 100-basis-point rate cuts for 2024 with the first one seen as soon as April, European Central Bank officials shunned market optimism, flagging still-high inflation and a somewhat resilient economy.
"Markets are definitely jumping the gun. There's going to be a continuous repricing of expectations about that first rate cut- the most important one because of that shift in mentality from central banks," Daniela Hathorn, senior market analyst at Capital.com.
The healthcare sector led sectoral declines with a 0.8% loss after Bayer lost 18.9%, on track for its worst day on record, after aborting a large late-stage trial testing a new anti-clotting drug. Germany's DAX fell 0.1%.
Separate news that the company had been ordered to pay $1.56 billion in the latest U.S. lawsuit over its commonly used Roundup weedkiller also hurt sentiment.
Meanwhile, data from the region showed producer prices fell along expectations in October, continuing a downward trend after September's record fall.
Further, Italian bank stocks gained after Moody's upgraded the outlook for the country's sovereign debt in an unexpected boost for Prime Minister Giorgia Meloni's government.
The FTSE MIB was down 0.2%, although futures on the benchmark index were up 0.6%.
The risk premium investors ask to hold Italian and Portuguese sovereign debt also fell, reflecting some relief.
"With Meloni coming into government, we've seen a stable economic landscape from Italy and the Moody's upgrade is a move towards stability in the credit market and will improve the positive sentiment," Hathorn added.
Among other major movers, Ashtead Group tanked 9.3% after the British equipment rental firm said it expected annual profit below expectations and a more than $2 billion depreciation charge for the year.
Julius Baer dropped 9.7% after the Swiss bank dampened profit expectations, while Austrian sensor maker AMS Osram lost 7.3% after announcing terms of a fully underwritten rights issue.
Technical products and services provider Diploma topped the benchmark STOXX 600 with an 8% rise after projecting an upbeat full-year margin.
(Reporting by Ankika Biswas in Bengaluru; Editing by Mrigank Dhaniwala and Sohini Goswami)