European stocks close lower as caution lingers on US trade policy progress

Europe's main stock index closed lower amid broader declines on Wednesday as investors monitored progress in trade negotiations with the United States and assessed a slate of economic data from the region.

The continent-wide STOXX 600 index  was down 0.6% on the day, after two consecutive sessions of gains after U.S. President Donald Trump delayed tariffs on the European Union.

German automakers including BMW , Mercedes-Benz  and Volkswagen are in talks with Washington on a possible import tariff deal.

The automobile sector  was 0.7% higher.

Despite signs of a thaw in the trade tensions between the U.S. and Europe, investors remained on edge as they struggled to keep up with the erratic nature of Trump's trade policies.

"Over the next weeks, the market will be in a relatively tight trading range because investors are waiting to see what Trump does," said Nick Brooks, head of economic and investment research at ICG.

Brooks added that it was too early to say anything definitive about automakers talking directly with the U.S. as negotiations lie in the hands of the EU as a whole.

Germany's main stock index  retreated 0.8% after hitting a record high earlier in the session, while the mid-caps index  hit its highest since April 2022.

Fresh data indicated that German import prices unexpectedly contracted by 0.4% year-on-year in April and that unemployment in Europe's largest economy grew at a faster-than-expected pace in May.

Uncertainty stirred up by U.S. trade policy shifts and price pressures are leading to higher expectations that the European Central Bank will cut interest rates next week.

In France, the CAC 40 index  closed 0.5% lower, reversing earlier gains after gross domestic product figures showed slight growth in the first quarter, as expected.

The defence index  extended gains by 0.7% as investors continued to flock towards the military ammunition companies amid little hopes of a pause to the ongoing Russia-Ukraine tensions.