Traders expect ECB rate hikes amid inflation fears
US to deploy additional troops to Middle East
Unilever in talks to sell foods business to McCormick
Updates prices throughout, adds analyst comment in paragraph 5
By Avinash P and Niket Nishant
March 20 (Reuters) - European equities fell for a third straight week, their longest streak of losses in almost a year, as the deepening conflict in the Middle East stoked inflation fears and revived bets for interest-rate hikes.
The pan-European STOXX 600 .STOXX closed 1.8% lower at 573.28 on Friday. It posted a 3.8% decline for the week.
What began as a calm week rapidly unravelled into renewed inflation fears, as strikes on energy infrastructure in the Middle East pushed oil prices higher, shattering hopes that risk assets had found a floor.
The European Central Bank kept the policy rate unchanged on Thursday, but policymakers expect to discuss hikes in the coming months.
"We think policymakers may already start hiking in April given that some have floated that possibility," said Franziska Palmas, senior Europe economist at Capital Economics.
Traders are currently pricing in two 25-basis-point rate hikes by year-end, according to LSEG data, a far cry from the pre-war expectations of unchanged rates throughout the year.
Every major sub-index in the STOXX 600 ended lower, with defence stocks .SXPARO and utilities .SX6P among the biggest drags, down 3.2% and 2.7%, respectively.
The heavyweight financial sector .SX7P and the energy .SXEP index lost 2% each.
CONFLICT GRINDS ON
The U.S. military is deploying thousands of additional Marines and sailors to the Middle East, three U.S. officials told Reuters.
Israel launched fresh attacks on Iran a day after U.S. President Donald Trump told the country not to repeat its strikes on Iranian natural gas infrastructure.
Europe's heavy reliance on Middle Eastern oil has left it exposed to rising crude prices as the Strait of Hormuz, which carries a fifth of global oil supplies, remains largely shut.
"What is not clear for now is the magnitude of this impact," said Gilles Guibout, head of European equity, AXA IM Core at BNP Paribas Asset Management.
Travel and leisure stocks, among the hardest hit sectors in the recent selloff .SXTP, slipped 1.1%.
Unilever ULVR.L ended 0.5% higher in a volatile trading session after the consumer goods group confirmed it was in talks with U.S.-based McCormick & Company MKC.N about selling its foods business.
Infineon IFXGn.DE shares jumped 1.5% after J.P.Morgan raised the German chips manufacturer's rating to "overweight" from "neutral".
(Reporting by Avinash P and Pranav Kashyap in Bengaluru; Editing by Harikrishnan Nair, Devika Syamnath and Shilpi Majumdar)
((Avinash.P@thomsonreuters.com;))
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