European stocks retreat from five-year high

LONDON (MarketWatch) — European stock markets moved lower on Tuesday after the European Commission cut the economic-growth forecast for the euro zone and said it expects unemployment to remain at an all-time high in 2014.

The Stoxx Europe 600 index (XX:SXXP)  fell 0.2% to 321.76, after closing at the highest level since May 2008 on Monday.

Click to Play Why China needs to kick the luxury habit

Despite Xi Jinping's clampdown on corruption and opulent displays of wealth, China's cities still want to attract wealthy residents. The WSJ's Deborah Kan and China World columnist Andrew Browne discuss why this explosion of luxury in China needs to change.

Banks led the benchmark lower, with Société Générale SA (FR:GLE)  down 2.1% in Paris, HSBC Holdings PLC (UK:HSBA) (HBC)   (HK:5)  off 1.4% in London, and Banco Santander SA (ES:SAN)   (SAN)  1.6% lower in Madrid.

Deutsche Bank AG (DE:DBK)   (DB)  dropped 1.8% after Bloomberg reported that co-Chief Executive Jürgen Fitschen is a suspect in a probe into courtroom testimony given in a long-running legal dispute between the bank and Leo Kirch's media group.

BMW AG (DE:BMW)  was also among companies being hit hard, down 3.3%, after the car maker said revenue slipped in the third quarter in a challenging market environment. The company also said operating earnings were hit by high expenditures for new technologies, increased personnel costs and growing competition.

The broader losses for the region came after the European Commission downgraded the forecast for economic growth in the euro zone in 2014 to 1.1%, from the 1.2% it expected previously. Additionally, unemployment was projected to stay at a euro-era high of 12.2% in 2014, up from the 12.1% estimated in the May report. Inflation in 2013 and 2014 is likely to come in at 1.5% before dropping to 1.4% in 2015, poised to stay below the European Central Bank's target of 2%.

The commission said the economic recovery is expected to continue and gather some pace next year, but that it is too early to declare the region's crises over.

"In recent months, the composition of global economic growth has shifted, and the external environment for the EU economy has become more challenging. Growth in some key emerging-market economies has slowed down: triggered by the anticipation of less-expansive monetary policies in the U.S., structural weaknesses have surfaced and financial-market volatility has ensued," the commission said in the report.

Reuters Investors in Europe eagerly await the European Central Bank's policy meeting on Thursday and hope for action after weak inflation data.

The report comes ahead of the ECB meeting on Thursday. Investors speculate the central bank could cut rates or hint at future policy action, given the release of a set of disappointing inflation numbers last week.

Later on Tuesday, attention turns to the U.S., where the ISM nonmanufacturing index for October is due for release at 3 p.m. in London, or 10 a.m. Eastern Time. Economists polled by MarketWatch expect a drop to 54% from 54.4% in September.

U.S. stock futures pointed to a lower open on Wall Street.

In Europe, Germany's DAX 30 index (DX:DAX)  dropped 0.4% to 9,004.67, retreating from a record close scored on Monday.

France's CAC 40 index (FR:PX1)  fell 0.4% to 4,270.71, and the U.K.'s FTSE 100 index (UK:UKX)  lost 0.6% to 6,726.14.

Mining firms, however, lent support to the London benchmark on Tuesday. Shares of heavyweights Rio Tinto PLC (UK:RIO)   (RIO)   (AU:RIO)  and BHP Billiton PLC (UK:BLT)   (BHP)   (AU:BHP)  gained more than 1.5%, and Anglo American PLC (UK:AAL)  climbed 3.1%.