European shares end lower as French political tremors rattle banks

By Shristi Achar A and Shashwat Chauhan

(Reuters) - European shares closed lower on Tuesday, with banks across the continent falling as investors fretted over political uncertainties in France while bracing for the U.S. Federal Reserve's monetary policy meeting later in the week.

The continent-wide STOXX 600 finished down 0.9%, logging its biggest single-day drop in two weeks, while Italy's and Spain's bank-heavy benchmarks shed 1.9% and 1.6%, respectively.

Banks led the selloff, with the sector closing down 2.2%, extending declines from Monday.

France's CAC 40 index, down 1.33%, extending losses from the previous session when President Emmanuel Macron called a snap election following a heavy trouncing of his allies in European elections at the hands of the far-right National Rally(RN).

"If the RN party gets into power, that would spell bad news for a lot of European projects (and) for the integrity of the European Union," said Thomas Gehlen, senior market strategist at SG Kleinwort Hambros.

Macron's gamble offered the far-right a shot at real political power after years on the sidelines and threatens to weaken his presidency three years before it ends.

The yield on the French 10-year bond was last at 3.2437%, touching its seven-month highs earlier in the session. [GVD/EUR]

The basic resources index, which includes Europe's largest mining firms, lost almost 2% as most metal prices came under pressure from a firmer dollar and concerns over demand in top consumer China. [MET/L] [IRONORE/]

On the data front, Britain's labour market showed more signs of cooling in April as the unemployment rate rose. London's FTSE 100 closed around 1% lower. [.L]

The focus will now be on the Fed's policy decision on Wednesday, which will help markets gauge the timing and the scope of interest rate cuts in the world's largest economy.

Back in Europe, European Central Bank chief economist Philip Lane said the ECB should persist in restraining economic growth given the ample inflationary pressures and wait with its next rate cut until uncertainty recedes.

Among non-financial stocks, Naturgy's slumped more than 14% after Spanish holding firm Criteria dropped its takeover plan with Abu Dhabi's TAQA for the Spanish gas firm.

Shipping stocks A.P. Moeller-Maersk and Hapag-Lloyd fell 7% and 9%, respectively, as analysts pointed at the U.N. Security Council's call for a ceasefire in Gaza on Monday could affect the stocks.

"A ceasefire could put an end to the attacks in the Red Sea and as a consequence put pressure on the freight rates due to significant overcapacity", Sybank analyst Mikkel Emil Jensen said.

(Reporting by Shristi Achar A and Shashwat Chauhan in Bengaluru; Editing by Sonia Cheema, Sohini Goswami and Tomasz Janowski)