LONDON — European stocks pared limited gains on Tuesday to trade lower by midday with investors digesting the latest economic data from the region and beyond.

The pan-European Stoxx 600 index was trading 1.7% lower by midday with all sectors in negative territory apart from utilities and technology. The index is up 2.37% month-on-month despite August being a quieter month for trading, traditionally, given the summer vacation period.

Markets turned lower on Tuesday following the release of euro zone inflation data for August which showed consumer prices increased by 3% this month from a year ago, according to preliminary estimates, far above expectations and the European Central Banks 2% target. The data will put pressure on the central bank to address inflation concerns at a key meeting next week.

On Tuesday morning, the best performer on the index was Belgium-based biotech Galapagos, its share price rising 5.5% after it said its CEO would step down.

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Shares of British pharmaceutical GSK slipped 1.3% after the company and SK Bioscience said they have begun a late-stage trial of their Covid-19 vaccine candidate.

Meanwhile, British business supplies distributor Bunzl was down 3.6% after it said it was facing supply chain challenges and labor and materials shortages in some markets as it presented its earnings from the first half of the year.

The pessimistic trade for European markets comes after data released on Monday showed euro zone economic sentiment eased more than expected in August, from a record high in July. 

Investors are also digesting the latest data out of China that showed slowing Chinese factory activity growth in August.

Chinas factory activity grew at a slower pace in August as compared with the previous month, data released Tuesday showed. The official manufacturing Purchasing Managers Index for August came in at 50.1, against Julys reading of 50.4. PMI readings above 50 represent expansion, while those below that level signal contraction. 

Shares in Asia-Pacific mostly slipped overnight after the data release. Meanwhile, the Hong Kong-listed shares of Tencent and Netease fell 3.18% and 3.46%, respectively, by Tuesday afternoon after new rules published Monday by Chinas National Press and Publication Administration showed plans to limit the time that those under 18 years spend playing video games to just three hours a week.

Meanwhile, U.S. stock futures rose slightly in overnight trading as the S&P 500 looks to wrap up its seventh straight month of gains at a record high.

Tuesday marks the last trading day of August, and major averages are poised to post solid gains. Investors are awaiting a key jobs report on Friday ahead of the Labor Day weekend. Economists polled by Dow Jones expect 750,000 jobs were created in August and the unemployment rate fell to 5.2%.

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- CNBCs Eustance Huang, Silvia Amaro and Yun Li contributed to this report.

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