By Sruthi Shankar and Susan Mathew
European shares fell on Tuesday as surging U.S. coronavirus cases and forecasts for a deeper-than-feared recession in the euro zone dimmed optimism around a post-pandemic rebound.
The pan-European STOXX 600 index slipped 0.6%, falling back from a near one-month high.
The banking sector <.SX7P>, which had risen 4% in the previous session tracking a global rally, fell by 1.4%, while real estate <.SX86P>, technology <.SX8P> and telecoms shares each dropped between 1% and 1.8%.
German drugs and pesticides maker Bayer slumped 5% after a U.S. judge questioned a long-negotiated settlement of lawsuits relating to its weedkiller Roundup.
As the economic impacts of the coronavirus crisis continue to be felt, the European Commission said the 19 nation single currency area would contract by a record 8.7% before rising by 6.1% in 2021, worse than its previous forecast.
Several U.S. states posted record daily coronavirus case counts, prompting many to reverse reopening plans as the U.S. death toll topped 130,000.
"Renewed coronavirus outbreaks in some parts of the world... supports our cautious stance and adds to downside risks for the advanced economies in particular," said Jennifer McKeown, head of the global economics service at Capital Economics.
"Even if the authorities continue to shun draconian restrictions, people may choose to avoid many types of economic activity."
London's FTSE 100 was down 1.5% as the pound rose to three-week highs on optimism that British and EU trade negotiators could find common ground. [GBP/]
The market focus will also be on signs of progress from talks this week in Brussels on a European recovery fund, which investors hope will be provided in part as grants, as proposed by the European Union.
Bleak forecasts for the rest of year saw Micro Focus, slide 19.6%, while French catering and food services group Sodexo dropped 4.1%.
Surging copper and iron ore prices saw Rio Tinto rise 0.4%.
Italy's UBI Banca and Intesa Sanpaolo both fell amid an increasingly bitter takeover battle, with UBI reiterating that Intesa's bid does not adequately reward shareholders in the smaller bank.
(Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D'Silva and Alexander Smith)