European stocks drop before Powell's Fed testimony

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Europe's main stock markets slipped Tuesday as investors tracked new political landscapes in France and Britain and looked ahead to testimony from Federal Reserve chief Jerome Powell.

Powell's remarks to Congress on Tuesday and Wednesday will be analysed for hints on the timing of US rate cuts, as investors bet on a first trim in September.

The Euro edged lower versus the dollar and pound, which is winning support from hopes of economic stability under Britain's newly-elected Labour government, according to analysts.

London's top-tier FTSE 100 index was down 0.1 percent nearing the half-stage, weighed down by a four-percent drop in BP shares as the British energy giant warned second-quarter earnings could take an impairment hit of up to $2 billion.

The Paris CAC 40 shed 0.8 percent in early afternoon deals.

The French stock market "is the weakest performer in Europe as more details emerge about what a left-wing alliance government could look like", noted Kathleen Brooks, research director at XTB.

"Although France has no clear leader right now, the prospect of a far-left party calling the shots and increasing both taxes and spending is worrying investors, and thwarted hopes of a post-election recovery rally in French assets and the euro."

Earlier, major Asian indices closed higher with Tokyo climbing to a record high.

Fed chair Powell last week fanned hopes of a cut, saying the battle against inflation had made "progress" and the job market was cooling.

"We expect Powell to reiterate the need to see more evidence of slowing inflation before cutting interest rates," said Carol Kong at Commonwealth Bank of Australia.

Investors are also looking to US consumer inflation data due Thursday for further indications that price increases are still easing as hoped, which would give the Fed greater confidence to start cutting rates.

Wall Street's main indices mostly advanced on Monday, with the S&P 500 and Nasdaq both reaching new records.

The optimistic mood continued into Asia, with Tokyo climbing two percent to close at a record high.

Shanghai reversed early losses to end 1.3-percent higher ahead of a key policy meeting next week and after Moody's Ratings revised up its 2024 GDP forecast for China to 4.5 percent.

- Key figures around 1100 GMT -

London - FTSE 100: DOWN 0.1 percent at 8,186.72 points

Paris - CAC 40: DOWN 0.7 percent at 7,571.71

Frankfurt - DAX: DOWN 0.4 percent at 18,401.60

EURO STOXX 50: DOWN 0.6 percent at 4,941.23

Tokyo - Nikkei 225: UP 2.0 percent at 41,580.17 points (close)

Hong Kong - Hang Seng Index: FLAT at 17,523.23 (close)

Shanghai - Composite: UP 1.3 percent at 2,959.37 (close)

New York - Dow: DOWN 0.1 percent at 39,344.79 points (close)

Euro/dollar: DOWN at $1.0825 from $1.0827 at 2030 GMT on Monday

Euro/pound: DOWN at 84.45 pence from 84.50 pence

Pound/dollar: UP at $1.2818 from $1.2810