European Shares Extends Losses

European equity markets extended a two-session drop Tuesday, ahead of an imminent flood of earnings reports that will provide a measure of whether corporate health matches with buoyant stock prices.

The Stoxx Europe 600 lost 0.6%, in line with Germany's DAX, while France's CAC-40 declined 0.4% and the U.K'sFTSE 100 shed 0.5%.

Following last week's rally, strategists said that some investors were likely still taking profits.

Franco-Dutch airline Air France-KLM was one of the biggest losers on the pan-European index, falling more than 5%, after the company became the latest to lower its earnings guidance for 2014, citing weak demand and difficulties repatriating revenue from Venezuela.

The group said it expected earnings before interest, tax, depreciation and amortization to stand at between EUR2.2 billion ($2.99 billion) and EUR2.3 billion in 2014, below the EUR2.5 billion it previously targeted.

Elsewhere, bank stocks remained in focus, after reports that Commerzbank AG could be the next lender to be scrutinized by regulators for allegations surrounding sanctioned payment activities.

Citing people familiar with the matter, the New York Times reported that state and federal authorities have begun settlement talks with Germany's second-largest lender, over the bank's dealings with Iran and other countries blacklisted by the U.S.

Late last month, BNP Paribas SA agreed to pay nearly $9 billion and plead guilty to crimes for violating U.S. sanctions--an unprecedented settlement that includes a year-long ban on the French bank's ability to conduct certain U.S. dollar transactions.

The broad downbeat tone appeared to be mirrored in the U.S. too, where the S&P 500 was indicated opening 0.2% lower. Futures indications, however, don't necessarily reflect in moves after the opening bell.

Back in Europe, sterling dropped 0.2% to $1.7101 weighed by U.K. factory output falling unexpectedly on the month in May, due to a broad-based decline.

The Office for National Statistics said the monthly falls in the U.K.'s industrial sector aren't a sign of weakness in the economy. However, it is likely the drop suggests a slowdown in the pace of growth among manufacturers in the second quarter of the year.

Elsewhere currency markets remained largely subdued with the euro broadly unchanged on the day against the U.S. dollar at 1.36.

Fabrice Brégier, chief executive of Airbus's passenger jet business, told the Financial Times in an interview that the European Central Bank should intervene to push the value of the euro down by 10% to between $1.20 and $1.25.

"Despite the ECB's recent package of easing measures having limited native impact on the euro so far, he stated that he sees the odds of quantitative easing being implemented by the ECB as "low" reducing downside risks for the euro," Lee Hardman, a currency economist at Bank of Tokyo-Mitsubishi UFJ, wrote in a note.

In commodities markets, gold climbed 0.3% to $1,320.40 an ounce while Brent crude fell below $110 a barrel for the first time in almost four week, retracing all the gains made since the crisis in Iraq began.

Prices began to fall from the nine-month high $115.71 a barrel, hit June 19, when it became clear that Iraqi exports would be unaffected by the violence sweeping the country's north. More recently, the prospect of Libyan exports resuming has added to the downward price pressure.

The spot price of palladium, meanwhile, climbed to its highest level in 13-and-a-half years Tuesday as a strong supply-demand dynamic continued to underpin the metal.

Later in the session, after the U.S. market close, aluminum producer Alcoa is due to kick off the second-quarter corporate earnings season.

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