Fashion Retailer H&M Drags European Markets Lower

European stock indexes dipped lower on Thursday after a profit warning at fashion retailer Hennes & Mauritz (H&M) knocked its shares down almost 4 percent

The pan-European FTSEurofirst 300 index, which rose 16 percent in 2013 and hit a 5-1/2 year high in January, edged down by 0.3 percent to 1,315.17 points in early session trading.

The euro zone's blue-chip Euro STOXX 50 index also declined by 0.4 percent to 3,119.22 points.

The drop at H&M took the most points off the FTSEurofirst 300 index.

"This was not what we had hoped for," said Societe Generale analyst Anne Critchlow, commenting on H&M's results.

"It seems to be a combination of the gross margin being a little bit weaker than we expected, down 30 basis points - we were looking for flat - and the company had previously guided that mark-downs would be basically in line year-on-year, and in the end it seems that they were slightly higher," she added.

FED RULING DENTS BANKS

The STOXX Europe 600 Banks Index fell 0.6 percent, with some of the region's top lenders hit by a ruling overnight by the U.S. Federal Reserve to block some banks' plans for higherdividends or share buybacks.

The Federal Reserve on Wednesday rejected Citigroup Inc's plans to buy back $6.4 billion of shares and boost dividends, saying the bank was not sufficiently prepared to handle a potential financial crisis.

The other banks blocked by the Fed on Wednesday in their plans for higher dividends or share buybacks were the U.S. units of HSBC, Royal Bank of Scotland and Santander , due to weaknesses in their capital planning processes.

The FTSEurofirst 300 has made little headway since hitting its 5-1/2-year peak of 1,353.47 points in late January, as concerns about a possible economic slowdown in China and tensions between Western powers and Russia after Russia's seizure of Crimea have pushed stock markets lower.

Fabrizio Quirighetti, economist and fund manager at Swiss bank SYZ, said continuing uncertainty over the economic and political outlook could curb further near-term gains for European equities.

"We could be in for some near-term volatility," he said.