By Sruthi Shankar

(Reuters). European stocks dropped more than 2% on Tuesday. The losses were led by commodity-linked industries, which are concerned about rising coronavirus incidences in China.

Pan-European sentiment fell by 2.1%. This is a drop of most of the gains it had made in its last sessions, when optimism about progress in Russia-Ukraine talks had raised sentiment.

European miners slumped 3.7% and oil & gas stocks dropped 2.9%, as crude prices shed almost 5% and industrial metals fell on concerns over demand from key consumer China following a surge in COVID-19 cases. [O/R] [MET/L]

UBS European equity strategist Nick Nelson said that some of the sectors most exposed to China are basic materials and mining and metals.

It’s another matter for markets to be concerned about, in terms of economic growth and the demand from European businesses selling into China.

French luxury goods manufacturer LVMH saw its revenues from China fall by 3.8%. This was the largest drag on STOXX 600.

Prosus (OTC) is a Dutch tech investor who holds a stake China’s Tencent. It fell 10.1% in the face of continued weakness in Chinese tech shares.

It is likely that Wednesday’s Federal Reserve rate hike will be initiated with a 25-basis point increase. Market participants are betting on the future direction of U.S. rates in response to rising inflation.

Also, on Thursday, The Bank of England plans to increase borrowing rates.

Among other stocks, Sweden’s H&M, the world’s second-biggest fashion retailer, slipped 3.6% after reporting a rise in quarterly sales that was in line with expectations.

Swedish Match, a tobacco and nicotine product manufacturer, slumped 8.1% following its announcement that it has halted plans to list and spin off its U.S. cigar company.