AI fears weigh on EU markets as Rheinmetall plunges nearly 17%

European stock markets closed mostly lower on Thursday, with technology and financial shares suffering sharp declines due to concerns over potential tighter US regulation of artificial intelligence (AI). Technology stocks faced pressure as investors worried about possible new regulations in a Democratic-controlled US Congress, which could slow capital expenditure in the sector.

Investors also evaluated corporate earnings reports and the Bank of England's decision to raise interest rates by 25 basis points, marking its first increase since 2023. The rate hike was prompted by mounting inflationary pressures from higher energy prices, with Bank of England Governor Andrew Bailey stating that further increases may be necessary if the conflict in the Middle East continues.

The central bank expects British inflation, currently at 3.5 percent, to rise to around 5 percent by mid-2027.

Major European indices experienced mixed performance, with the pan-European STOXX 600 index falling 0.38 percent, while Britain's FTSE 100 and Germany's DAX each declined 0.43 percent. Switzerland's SMI lost 0.37 percent, and France's CAC 40 bucked the trend, gaining 0.34 percent. Despite the overall market downturn, some individual stocks performed well.

Endeavour Mining surged nearly 6 percent in London, while Airtel Africa rose almost 4 percent. Beverage giant Diageo climbed 3 percent after reporting unexpected growth in quarterly organic sales, and Coca-Cola HBC plummeted nearly 19 percent following reports of potential risks to its Russian operations. Computacenter dropped more than 7 percent, and BAE Systems, NatWest, Prudential, and several investment companies experienced declines between 3.5 percent and 6 percent.

Rheinmetall, a German defense manufacturer, plunged nearly 17 percent after revising its 2026 outlook for the second time in three months, citing delays in its Boxer armoured vehicle program.