By Shristi Achar A and Shashwat Chauhan
(Reuters) -European shares slipped on Thursday, with automakers falling on continued jitters over the European Union's new tariffs on imported Chinese electric vehicles, while Italian shares underperformed their continental peers.
The continent-wide STOXX 600 closed 1.3% lower, with auto stocks losing 2.4% as investors fretted over how China might respond to the EU's new tariffs on imported Chinese EVs to combat what Brussels sees as excessive subsidies from Beijing.
"If the tariffs fail to fully level the playing field for domestic producers, or even advantage them, Europe may just have shot itself in the foot," Bas van Geffen, senior macro strategist at Rabobank, said.
Beijing slammed the tariffs as protectionist behaviour and said it hoped the EU would correct its "wrong practices" and handle trade friction through dialogue.
Italy's benchmark stock index lagged peers with an 2.2% drop after Italian borrowing costs rose to their highest since November at an auction.
European equities have pulled back from last week's record highs hit on the back of the European Central Bank's interest rate cut, as investors assessed political uncertainty in France after the calling of a snap election.
France's CAC 40 remained under pressure, falling almost 2%, while European banks dropped 2.4%.
Also spreading caution across global markets, the Federal Reserve on Wednesday held interest rates steady and pushed out the start of rate cuts to perhaps as late as December.
Latest projections showed Fed policymakers anticipating just one quarter-point rate cut this year from three seen in March.
Back in Europe, data showed euro zone industrial production contracted 0.1% in April, compared to analysts' expectations of 0.2% growth.
Spain's EU-harmonised 12-month inflation rose to 3.8% in May, from 3.4% in the period through April.
Among other stocks, Wise sank 11.5% to the bottom of the STOXX 600 after the British money transfer company forecast a weaker than expected outlook for profits.
Shares of Lufthansa slid 5.5% as J.P.Morgan placed the German flagship airline on a negative catalyst watch.
On the bright side, Halma jumped 13.4% as the British health and safety device maker raised its dividend for the 45th consecutive year after posting a 10% jump in annual profit.
Finnish engineering company Valmet gained 12.8% after hiking its core profit (EBITA) guidance for 2024.