A spike in oil prices dented airline shares on Wednesday, helping push down European equities for a third day as the threat of an attack against Syria looked closer, but boosted oil producers such as Statoil and BG Group.
The prospect of a U.S.-led attack on Syria, possibly within days, has raised concerns about the impact on the broader region. That has prompted investors to cash in on an 8 percent rally in European stocks since late June and buy government bonds and other assets less reliant on global economic conditions.
At 0730 GMT, the FTSEurofirst 300 index of top European shares was down 0.7 percent at 1,193.91 points and the euro zone Euro STOXX 50 was 0.5 percent lower at 2,736.48 points. Both indexes suffered their worst daily loss since June on Tuesday.
The FTSEurofirst 300 is still up 5.3 percent this year but has pulled back 3.9 percent since mid-August due to an expected reduction in U.S. monetary stimulus, a political crisis in Italy and, this week, the situation in Syria.
"There is profit taking here and people are trying to protect their portfolio ... as a tactical element because they have performed quite well year to date," said Sergio Trezzi, head of retail sales and client service for continental Europe at Invesco, which manages assets worth $730 billion.
"But when you look at the (six to 12-month) strategic asset allocation, I don't believe the turmoil we're seeing right now will change (it)."
A fund selector survey by Invesco found 44 percent of respondents plan to increase their exposure to European equities over the next 12 months, more than for any other asset class.
Sentiment surrounding Europe has improved on more upbeat economic data from the region this summer, helping the FTSEurofirst 300 outperform the U.S. S&P 500 by roughly 1.6 percent since June.
Travel & leisure stocks fell 2.3 percent, led by airlines such as Lufthansa, as the prospect of military action against Syria fuelled concern about Middle Eastern crude supply, jolting oil prices higher.
A cautious guidance comment from Europe's largest hotel operator, Accor, also weighed on the sector.
The jump in crude prices, however, boosted oil & gas stocks , which rose 1.7 percent, with Norway's Statoil up 2.3 percent, also thanks to a new discovery. International gas and oil producer BG Group L> jumped 2.9 percent.
"Energy in particular is a relevant sector given the ... spike in geopolitical concerns," Robert Parkes, a strategist at HSBC, said. "That is a sector that investors have shunned and valuations stand at a pretty attractive level."
The energy sector was trading at 9.3 times its expected earnings for the next 12 months, the lowest valuation multiple in Europe, Datastream data showed. Along with utilities and telecoms, it was among the few sectors trading below their 10-year average multiples.