LONDON — European stocks closed lower on Thursday as the Iran war escalated further and investors navigated the latest interest rate decisions from the region's central banks.
The pan-European Stoxx 600 ended the session down 2.4%, with all major bourses in negative territory and all sectors except for oil and gas trading lower.
Miners led losses, with the Stoxx Europe Basic Resources sector closing 4.2% lower. This followed a sharp sell-off in the spot price of gold and silver, which fell 4.7% and 8% respectively.
FTSE 100-listed mining giants Antofagasta and Fresnillo both closed lower, down about 5.7% and 7.4%, respectively, as heightened inflation fears and rising energy prices affect producers' margins.
All other sectors were in the red during early trade, including banks and travel stocks.
Norwegian oil giant Equinor bucked the wider trend, soaring 11% after reporting its annual earnings. The company generated $27.6 billion of operating income, with increases in equity production of liquids and gas, and renewable power. Equinor said Wednesday it had discovered a large oil field near the Arctic Circle, estimated to yield between 14 million and 24 million barrels.
A significant escalation in the conflict came Wednesday when Israel launched strikes on Iran's South Pars gas field, prompting Tehran to launch retaliatory missile attacks on Qatar's Ras Laffan liquefied natural gas terminal.
U.S. President Donald Trump warned on Wednesday that if Iran continued targeting Qatar's energy facilities, America would "massively blow up the entirety of the South Pars Gas Field." Oil prices jumped once again overnight following the strikes and comments.
Europe's regional central banks delivered monetary policy decisions on Thursday, with the Iran conflict now dominating policymakers' outlook on growth and inflation.
The European Central Bank left its main interest rates unchanged. The Bank of England maintained interest rates steady 3.75% in a unanimous decision by its nine-member monetary policy committee. Sweden's Riksbank kept its key rate at 1.75%, while the Swiss National Bank held at 0.0%.
Yields on 10-year gilts, the benchmark for U.K. government borrowing, extended earlier gains to add 13 basis points immediately after the BoE decision, reaching 4.875% before easing. Shorter-dated 2-year gilts surged 37 basis points to 4.478%, as yields on German bunds also rose.
In the U.S., equities fell on Thursday, with the Dow Jones Industrial Average sliding 0.7%, the S&P 500 falling 0.6%, as the Nasdaq Composite slipping 0.7%.
The decline came after a surprisingly hot producer prices report, and greater inflation expectations from the Federal Reserve, which have added to fears that the war in Iran could mean the U.S. economy is headed for a stagflation scenario — or a period of lower growth and higher pricing pressures. Asia-Pacific markets dipped on Thursday.
Earnings come from Enel, Equinor, BASF, Argenx and Vonovia.
— CNBC's Sarah Min contributed to this market report.