By Agamoni Ghosh and Medha Singh
(Reuters) - European shares fell on Thursday as investors digested the implications of the U.S. central bank's neutral message and mixed sets of manufacturing data from the region, while a lift in auto and bank stocks help curtail further losses.
The pan-European STOXX 600 index edged lower by 0920 GMT with Germany's DAX outperforming as major markets returned from the May Day holiday, except for London's FTSE 100, which was trading flat.
U.S. Federal Reserve Chairman Jerome Powell disappointed the doves after the central bank's Wednesday meeting, signaling little appetite to adjust interest rates anytime soon.
"Investors see the need to recalibrate their expectations because the chair said there was no greater bias for a cut or a raise in the near term," said Ken Odeluga analyst at City Index.
"That was interpreted as somewhat more hawkish than expected given that the market has been pricing in a reduction perhaps as early as this year."
Later on Thursday, the Bank of England will also decide on rates. No change is likely; investors will be looking for a better picture of the UK economy and clues on Brexit preparations.
The basic resources sector dropped about 1 percent after copper prices fell to their lowest in more than two months, while the retail sector was weighed down by online-only fashion retailer, Zalando, which plans to charge delivery fees for small orders in more markets.
German fashion house Hugo Boss also slipped after reporting a fall in first-quarter earnings.
Andritz was among the biggest decliners on STOXX 600 after the company cut its full-year profit forecast, partly in response to weak car industry demand that hit its metals business.
Helping temper those losses, auto stocks jumped over 1 percent boosted by German carmaker Volkswagen (DE:VOWG_p) which shrugged off a 1 billion euro legal charge and met first-quarter operating profit forecasts.
GROWTH PANGS
The bank sub-index reversed course to shed earlier losses and turn positive with French lender BNP Paribas (PA:BNPP) providing the biggest boost after its first-quarter net profits beat expectations.
Britain's Lloyds Banking Group (LON:LLOY) however, fell after giving up hope of a profit-boosting rise in interest rates before 2020. Dutch bank ING Groep (AS:INGA) also slid after reporting a 6.1 pct decline in first-quarter profits.
Shares in Swiss toilet and plumbing supplies maker Geberit vaulted to the top of STOXX after first-quarter earnings beat expectations.
Growth worries continued to linger with the latest data showing Euro zone factory activity contracted for a third month in April, hurt by weak global demand, with German numbers particularly on the downside.
Earlier in the week disappointing factory numbers from China had gripped markets with investors worrying about sluggish global growth.
Some hope emerged though on the trade front, after reports that United States and China may be nearing a deal that would roll back some of the U.S. tariffs on $250 billion worth of Chinese goods.