Europe close: Stocks fall, Dax moves further below key technical support

(Sharecast News) - European shares were lower on Tuesday as persistent fears over higher interest rates and a warning from Moody's that a looming US government shutdown would threaten America's triple-A credit rating. "Hawkish commentary by Fed officials mentioning one more rate hike, some $134 billion of new government debt sales this week and the risk of a US government shutdown are too much for stock investors," commented IG senior market analyst Axel Rudolph.

"Global equity indices' slip through key technical support during the seasonally weaker period of the year point to further declines. US new home sales have borne the brunt of rapidly rising rates and fall the most in eleven months."

The pan-European Stoxx 600 index was down 0.61% to 447.70, alongside a 0.97% drop on the German Dax to 15,255.87, while the Cac-40 fell 0.70% to 7,074.02.

Moody's warned overnight that a shutdown would be "credit negative for the US sovereign".

"In particular, it would demonstrate the significant constraints that intensifying political polarisation put on fiscal policymaking at a time of declining fiscal strength, driven by widening fiscal deficits and deteriorating debt affordability," the ratings agency added.

Hard-right Republican members of the House of Representatives are refusing to reach a compromise with their own party's leadership over a spending bill, leaving just a few days left for Capitol Hill to avert a shutdown, by passing a spending bill by October 1 or see hundreds of thousands of federal workers laid off.

Meanwhile central bankers repeated the message that a cut in interest rates was not coming anytime soon. European Central Bank chief Christine Lagarde said they would need to stay restrictive for as long as necessary.

Federal Reserve member Neel Kashkari said "rates probably have to go a little higher, and then be held higher for longer".

Susannah Streeter head of money and markets at Hargreaves Lansdown, said: "With little data expected to blow away worries about the impact on high interest rates, concerns are set to linger, holding back gains for stocks.

"Nervousness is setting in about restrictive monetary policy in major economies, particularly the US, reducing appetite for goods and services, as consumers and companies keep their belts tightened."

China's economic woes were also in focus after Evergrande shares plunged for the second day in a row, as the real estate groups' mainland unit missed a debt payment.

In equity news, banks were up on the prospect of higher profits on the back of elevated interest rates, with Barclays, Bankinter and CaixaBank shares rising 2% in a weak market. Barclays also benefited after an upgrade to 'overweight' by Morgan Stanley.