By Shreyashi Sanyal
(Reuters) - European shares lost ground on Thursday, with banks leading declines, as investors awaited signs of more stimulus from the European Central Bank in the face of a strong euro, although it was expected to keep its policy unchanged.
The pan-European STOXX 600 (STOXX) index dropped 0.2% moments after opening higher, as traders turned cautious ahead of the policy decision at 1145 GMT, which will be followed by ECB President Christine Lagarde's news conference at 1230 GMT.
Following the U.S. Federal Reserve's adoption of average inflation, investors will be keen on knowing whether the ECB will adopt a similar outlook, especially after comments from ECB Chief Economist Philip Lane that the recent euro strength rate "does matter," said Hussein Sayed, chief market strategist at FXTM.
"Latest developments in the Eurozone and especially the improvement in economic data rules out further easing for now, but given that the number of COVID-19 cases are rising again and negotiations with the UK over Brexit are not going well, the risks are mounting," Sayed said
Britain and the EU will hold emergency discussions on Thursday over Prime Minister Boris Johnson's plan to undercut parts of the Brexit divorce treaty.
The EU warned of legal action under its divorce treaty with Britain if emergency talks do not reassure the bloc.
Rate-sensitive European banks (SX7P) fell 1.5%, the biggest losers among sectors in early trading, while travel and leisure stocks (SXTP) bounced 0.3% following steep declines in the previous session.
Energy major BP (L:BP) fell 1.5% as it entered a $1.1 billion deal to buy 50% stakes in two U.S. developments from Norway's Equinor (OL:EQNR) to step into the offshore wind market. Equinor shares fell 0.7%.
LVMH (PA:LVMH) shares fell 1.5%, weighing down the euro zone blue-chips index (STOXX50E), after Tiffany & Co (N:TIF) sued the French luxury goods giant on Wednesday for reneging on a $16 billion takeover deal.
Games Workshop (L:GAW) jumped 18% to the top of the STOXX 600 after saying trading in the three months to end August topped its expectations.
Italy's Nexi (MI:NEXII) gained 5% after a report that the payments firms and SIA are close to clearing a major hurdle to a potential merger.