By Amruta Khandekar and Matteo Allievi

(Reuters) -European shares fell on Wednesday as fresh data pointing to China’s faltering economic recovery as well as slowing services sector activity in the euro zone stoked concerns about a sharp hit to global growth.

The pan-European STOXX 600 index was down 0.4% by 8:23 GMT, following a quiet session on Tuesday when the U.S. markets were closed for Independence Day.

China’s services activity expanded at the slowest pace in five months in June, a private-sector survey showed on Wednesday, piling on to a raft of data signalling weakness in the world’s second-largest economy after the pandemic.

“Those Chinese PMI (data) are very important towards market sentiment as they fade away the prospects of higher demand from the second biggest economy in the world,” said Pierre Veyret, ActivTrades analyst.

Further hurting investor sentiment was data that showed euro zone business activity slipped into contractionary territory. Services activity in major European economies was also hit, with France’s dominant services sector falling in June for the first time since January.

“Most of those economies are heading towards a recession, and this doesn’t provide the European Central Bank (ECB) with much space to raise rates significantly in the future,” said Veyret.

Citigroup cut its 2023 economic growth forecast for the euro area, citing pressures from a high interest rate environment as the ECB signalled further hikes.

Later in the day, the Federal Reserve will release minutes of its latest monetary policy meeting when it kept interest rates unchanged but signalled it could hike again in the future.

Miners fell 1.2% and were the biggest sectoral decliners as global growth concerns hurt metal prices.

China-exposed luxury firm LVMH, which is Europe’s most valuable company per market capitalisation, was down 0.6%.

The financials sector was also a big drag as insurance firm Prudential Plc, which also has exposure to China, slipped 2.2%.

The technology sector sector dropped 1.0% as shares of chipmakers Infineon, Nordic Semiconductor and Aixtron fell between 1.8% and 4.2%.

China’s export controls on metals used in making semiconductors are “just a start”, an influential trade policy adviser said on Wednesday.

Automakers were the only bright spot, up 0.3% as Sweden-based Volvo Cars rose 1.6% after reporting a 33% year-on-year rise in June sales.

Evotec rose 2.6% after the German biotech firm won a $74 million contract with the U.S. Department of Defence (DoD) to develop drugs targeting orthopoxviruses.

(Reporting by Amruta Khandekar in Bengaluru and Matteo Allievi in Gdansk; Editing by Dhanya Ann Thoppil and Janane Venkatraman)

Brought to you by