Europe stocks mostly drop before UK budget

European equities mostly fell Thursday with London on tenterhooks before a painful UK budget set to rip up the country's economic forecasts.

The British stock market slid 0.6 percent and the pound fell versus the dollar as finance minister Jeremy Hunt readied a budget that will hike taxes and slash spending in a bid to balance the books.

In the eurozone, Paris lost 0.5 percent but Frankfurt won 0.2 percent on upbeat Siemens results, and after a mixed Asian session.

Investors also tracked fresh Russian strikes that hit cities across Ukraine, having been spooked Wednesday by a deadly missile blast in Poland.

Thursday's focus remains squarely on Britain's announcement which is scheduled for 1130 GMT.

Traders fear the budget will worsen Britain's cost-of-living crisis after inflation spiked to a 1981 peak of 11.1 percent, as the economy heads toward recession.

"Hunt is poised to unveil a raft of spending cuts and tax increases to plug the estimated ?55 billion ($65 billion) fiscal black hole," said Interactive Investor analyst Victoria Scholar.

"With a recession on the horizon and the 41-year high inflation there are concerns that we are heading back to an era of austerity and that could add to the woes facing consumers and businesses," she warned.

The UK government will also give fresh estimates for the country's growth and inflation.

Elsewhere, Wall Street was hit Wednesday after retailer Target posted weak results and warned of a poor festive shopping season.

Two reports showing inflation easing in the world's top economy provided a springboard for world markets over much of the past week as investors took the readings to mean almost a year of monetary tightening was finally kicking in.

But on Wednesday the commerce department said retail sales jumped far more than expected last month, suggesting Americans are still able to weather the higher inflation and interest rate environment.

That was compounded by comments from a top Fed official that she did not see the bank stopping rate hikes, indicating she was willing to push borrowing costs above five percent, from the current 3.75 to 4.0 percent.

Traders have for months grown increasingly fearful that the Fed's hawkish tilt will cause a recession, and policymakers have made clear they are willing to keep lifting even if that means hurting the economy.

The Bank of England, which is also raising interest rates to combat sky-high inflation, says Britain is probably already in recession after its economy shrank in the third quarter and will do so again in the final three months of 2022.

London - FTSE 100: DOWN 0.6 percent at 7,309.46 points

Paris - CAC 40: DOWN 0.5 percent at 6,573.74

Frankfurt - DAX: UP 0.2 percent at 14,262.63

EURO STOXX 50: DOWN 0.2 percent at 3,876.21

Tokyo - Nikkei 225: DOWN 0.4 percent at 27,930.57 (close)

Hong Kong - Hang Seng Index: DOWN 1.2 percent at 18,045.66 (close)

Shanghai - Composite: DOWN 0.2 percent at 3,115.43 (close)

New York - Dow: DOWN 0.1 percent at 33,553.83 points (close)

Pound/dollar: DOWN at $1.1878 from $1.1914 on Wednesday

Euro/dollar: DOWN at $1.0360 from $1.0395

Dollar/yen: UP at 139.67 yen from 139.54 yen

Brent North Sea crude: DOWN 0.4 percent at $92.46 per barrel

West Texas Intermediate: DOWN 0.8 percent at $84.94 per barrel