EUROPE MARKETS: Europe Stocks Sway After Fed Rate Comment

By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- European stocks pared gains Thursday, pulled down alongside U.S. equities after a Federal Reserve official said he foresees policy makers issuing an interest-rate increase sooner than later.

The Stoxx Europe 600 index was up less than 1 point at 342.05, and had been swept lower after St. Louis Fed President James Bullard said a rate hike by the Fed could take place at the end of the first quarter of 2015. He expects rise in inflation above the 2% level next year, which will spur a debate about the path of interest rates at the Fed, said Bullard during an appearance on the Fox Business Network.

While Bullard said in May he sees a rate increase coming late in the first quarter of next year, bets currently on the fed funds futures market indicate a rate hike will take place in the middle of 2015. On Wall Street, the S&P 500 index (SPX) was off 0.4% and the Dow industrials were off session lows after losing more than 100 points.

European stocks had been on track for its first win in five sessions. The index on Wednesday dropped 1.1%, the steepest decline since mid-April according to FactSet data, as equities keyed off a slide in U.S. equities.

Bank stocks were lower, though shares of Barclays PLC had already been suffering after New York Attorney General Eric Schneiderman launched a civil lawsuit against the bank on Wednesday. Barclays shares fell 7.3%, the worst price performer of the session. The lawsuit alleges Barclays dramatically increased the market share of its dark pool through a series of false statements to clients and investors about how, and for whose benefit, the bank operates its dark pool.

Dark pools, private trading platforms that allow block trades, are designed to let firms make anonymous trades without disclosing their hands. In July 2012, the Bank of England pushed out Barclays's then-chief executive Bob Diamond a month after the lender was fined for rigging the Libor benchmark interest rate.

"Other European banks operating dark pools are likely to also face charges in the future," said Credit Suisse analyst Amit Goel in a note Thursday, adding that UBS AG (UBS) may face $187 million in litigation costs tied to its U.S. dark-pool operation. Shares of UBS fell 2.8%.

Meanwhile, Standard Chartered PLC shares dropped 4.1% after the bank, which focus on emerging markets, warned about its first half operating profit.

But heading up advancers in Thursday's session was a 5.9% in London Stock Exchange after the exchange operator said it's acquiring U.S.-based asset manager Frank Russell Co. for $2.7 billion. LSE was the top gainer on the U.K.'s FTSE 100 index , though that index pulled back 0.1% at 6,731.

Fresenius Medical Care AG popped up 2.8%, after a ratings upgrade at Credit Suisse to outperform from neutral on Thursday.

Among country indexes, France's CAC 40 index fell 0.6% to 4,434.23, and Germany's DAX 30 equity index lost 0.6% to 9,805.48.

More must-read stories from MarketWatch:

FIFA bans World Cup player Suarez after biting incident

U.S. House Speaker Boehner to sue Obama administration

Google's smartwatch demo: still early days

Subscribe to WSJ: http://online.wsj.com?mod=djnwires