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European stock markets fell on Tuesday, hit by a drop in carmaker Volkswagen whose shares retreated after VW reported first-quarter earnings.
The pan-European STOXX 600 and FTSEurofirst 300 indexes were both down by 0.4 per cent, although both also remained on track for their third consecutive month of gains and their best month since last November.
VW was among the region's worst-performing stocks, falling 3.4 per cent and dragging down rivals such as BMW and Renault.
VW posted a surprise increase in first-quarter operating profit, as the carmaker pushes ahead with steps to overcome its diesel emissions scandal.
Europe's biggest automaker is counting on a deal with US authorities and car owners next month over its rigging of diesel emissions tests while pushing a strategic overhaul across its 12-brand group.
Nevertheless, some analysts said VW was not out of the woods yet, in terms of the impact from its diesel emission woes.
“As we still expect additional burdens related to Dieselgate in 2016, we stick to our sceptical view on VW,” said DZ Bank analyst Michael Punzet.
Among stocks outperforming the weaker, overall market was steelmaker ArcelorMittal, which rose 4.1 per cent after Rabobank raised its rating on the stock to “hold” from “reduce''.
European equities have had an element of support of late from the euro's relative weakness against the USdollar, with a weaker euro typically helping European exporters.
The dollar hovered near its highest level in two months against a basket of currencies on Tuesday on growing expectations of an imminent US interest rate hike, while the euro lost ground.
The dollar has risen over the last week following comments from US Federal Reserve Chair Janet Yellen, who said a rate increase in coming months would be “appropriate” if the US economy and jobs market continued to improve.
Nevertheless, some fund managers remained cautious on the near-term outlook for equities, given uncertainty over future US interest rate rises and next month's vote in Britain over whether or not to stay in the European Union.
“We remain underweight on equities,” said Francois Savary,chief investment officer at Geneva-based fund management and consultancy firm Prime Partners.
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