European shares fall 2% on taper fears; commodities slump hits miners

European shares fell almost 2% on Thursday as fears built that tapering in global monetary policy would happen sooner than previously expected, while a slump in commodity prices dragged mining stocks lower.

The pan-European STOXX 600 was down 1.9% at a two-week low, with mining stocks sliding 4.6% on track for their worst day in in more than year.

Asian stocks fell earlier in the day to their lowest levels this year, as minutes published Wednesday by the U.S. Federal Reserve's latest policy meeting gave the impression of a looming cut in its massive, pandemic-era bond-buying programme.

"This does not mean that U.S. interest rate hikes will also be arriving sooner than later, but the start of divergence of monetary policy between the United States and the rest of the world, notably Europe and Asia, will have (market) implications," said Jeffrey Halley, market analyst at OANDA.

Although the European Central Bank has held steady, rising inflation has prompted some policymakers to say it must begin to rein in its easy money policies that have been instrumental in lifting the STOXX 600 to record highs.

The focus will turn to the high-profile annual U.S. Jackson Hole conference of central bankers in late August, where Fed Chair Jerome Powell could signal he is ready to start easing monetary support.

ECB President Christine Lagarde will not attend the conference, an ECB spokesperson said this week.

Banking stocks including Asia-focused HSBC, Spain's BBVA and France's BNP Paribas fell almost 3%.

Luxury stocks with a large exposure to China's economy such as LVMH, Kering and Richemont dropped between 7% and 9% on Beijing's plans to target excessive corporate profits and wealth inequalities.

The travel and leisure index declined 2.5% as a surge in cases of the Delta variant of the coronavirus added to concerns of slowing global growth and took the shine off a solid second-quarter corporate earnings season.

With the European earnings season nearly at the halfway mark, profit for STOXX 600 companies is expected to have surged 150% in the second quarter, the best since Refinitiv IBES records began in 2012.

Swedish heating technology specialist Nibe Industrier jumped 9.2% to the top of the STOXX 600 after posting a 64% jump in first-half profit.

Swiss building materials supplier Geberit, on the other hand, fell 3% as it warned about rising raw materials prices.

Utilities stocks, considered a safe bet at a time of economic uncertainty, were among the smallest decliners.