Europe close: Stocks fall after Fed confirms shift towards easier policy

Stocks in Europe fell as investors booked profits after the head of the US central bank confirmed, as had been widely anticipated, that monetary policy would remain easier for longer.

In reaction, IG senior market analyst, Joshua Mahony, told clients: "It seems to have been a case of buy-the-rumour, sell-the-fact for financial markets today [...]

"However, while longer-term easing from the Fed is a good thing for stocks, the decision to effectively raise the inflation target could ultimately weaken the hand of US consumers as their real wages are inflated away."

By the end of trading, the benchmark Stoxx 600 had retreated 0.64% to 370.72, while the Dax was drifting lower by 0.71% to 13,096.03 and the FTSE Mibtel was down by 1.44% at 19,847.38.

Overnight, the S&P 500 and Nasdaq Composite had hit fresh record highs, although some market observers were cautious regarding the outlook for corporate credit markets, in particular, which they said might end up taking their toll on equities.

The latest batch of economic data out of the single currency bloc was nevertheless largely upbeat.

In France, INSEE's manufacturing sector confidence gauge soared past forecasts, rising from a reading of 82 points in July to 93 for August (consensus: 86).

At the euro area level meanwhile, the European Central Bank reported that the annual rate of expansion in M3 money supply picked up from 9.2% for June to 10.2% in July (consensus: 9.2%).

Claus Vistesen, Pantheon Macroeconomics's chief economist, said the figures laid a strong foundation for a continued rebound in growth over the back half of the year.

He also pointed to still solid trends in lending to non-financial corporates, while noting that consumer credit growth was now slowing.