European stocks fall as private market stress, Mideast tensions dent sentiment

European shares slipped on Wednesday as escalating Middle East tensions and fresh jitters over private markets pushed investors out of riskier assets, though gains in retailers helped limit losses.

The pan-European STOXX 600 index .STOXX dipped 0.7% to 621.19 points.

Financial services .SXFP led sectoral declines with a 2.4% drop, as Partners Group PGHN.S shed 16.3% after the Swiss private markets firm restricted redemptions in one of its "evergreen" private equity funds.

Investors fear that private credit and equity firms are overexposed to mid-sized companies, vulnerable to disruption from emerging artificial intelligence models.

These concerns have fuelled a wave of fund redemptions and, since late last year, have repeatedly triggered global selloffs.

"We don't see systemic risk coming from private credit. We have seen some default rates increasing, but we are more cautious today than six months ago," said Claudia Panseri, chief investment officer at UBS Global Wealth Management, adding that it is not the kind of concern that would have a huge impact on banks or investor assets.

Panseri said that the prolonged Middle East conflict is the bigger risk currently.

Tensions escalated after Iranian attacks on Kuwait damaged its airport and injured dozens, while U.S. strikes near the Strait of Hormuz raised fears of disruption to energy supplies. Oil prices rose for a second day, adding pressure on energy-import-dependent Europe.

"If we don't get any relief on the energy prices, the reaction would be to take risk out of the portfolio and not to shift our assets from the U.S. or emerging markets to Europe," said Thomas Romig, CIO Multi Asset, Assenagon Asset Management.

Adding to uncertainty, the Trump administration late on Tuesday also proposed new tariffs of up to 12.5% on imports from 60 economies, including European Union, arguing that they had failed to curb trade in goods made with forced labor.

Retailers provided some support. B&M European Value Retail BMEB.L jumped 14.6% after its annual adjusted core profit beat estimates.

Zara owner Inditex ITX.MC gained 1.5% after reporting a strong start to summer trading, easing worries that inflation could curb consumer spending.

The broader retail sub-index .SXRP rose 1%, making it one of the day's strongest sectors.

Shares in Valeo VLOF.PA jumped 18.4% as investors warmed to the French car parts supplier after analysts pointed to growth potential in data centres and energy storage, highlighting the company's power and thermal management capabilities.

AkzoNobel AKZO.AS shares fell 17.2% after Nippon Paint 4612.T and Sherwin-Williams SHW.N said that they had decided to terminate their efforts to jointly acquire the paint maker.

The European Central Bank is set to raise interest rates by 25 basis points next week, with another increase likely in September, according to a Reuters poll.

-Johann M Cherian, Utkarsh Hathi and Ragini Mathur/Reuters