By Sruthi Shankar

(Reuters) -European share prices fell Tuesday, to the lowest level in almost a week Deutsche Bank Commerzbank (DE) and (DE) both slumped following a large stake sale. Investors awaited U.S. Inflation data, which could encourage bets on bigger interest rate increases.

Banks were the hardest hit by the pan-European index, which fell 0.9%.

Deutsche Bank and Commerzbank dropped 9.8% and 8.4% respectively after an undisclosed buyer sold stakes greater than 5% in Germany’s leading lenders.

The U.S. yields soared ahead inflation data, which is expected to indicate that consumer prices rose in the largest economy in the world. This further weakened the appetite for shares.

After recovering strongly from the March lows, STOXX 600 is stuck within a range due to worries over the fallout of war in Ukraine, aggressive rate rises by Federal Reserve to control inflation, and increasing coronavirus incidences in China.

Christian Stocker, an equity strategist for UniCredit said: “We are certain that we’re in an economy slowdown. Company earnings growth rates will also slow.”

The company margins remain relatively stable despite high inflation. The current inflationary environment is a bit skewed so Equities may be a good hedge.

Stocker said that while there may be a 5 percent sell-off of European equity securities, the overall earnings outlook should remain positive.

Wall Street banks are set to start the U.S. quarterly earnings season this week. European reporting season kicks into gear this month. Refinitiv data shows that analysts predict a 19.9% increase in profits for STOXX 600 firms.

Luxury stocks like LVMH that are exposed to China, Kering (PA:), and Hermes fell in the range of 1 to 2%, as China was hit by its most severe COVID-19 epidemic in 2 years.

Oil & gas stocks stayed afloat as crude prices rose after falling below $100 a barrel in the previous session. [O/R]

The stock of Leonardo, an Italian defense group, rose 3.5% after Deutsche Bank upgraded it to “buy” based on higher expectations for increased defence spending in its main markets.