European stocks slip on Evergrande woes, weak German business morale

European stocks fell on Friday as worries about troubled property developer China Evergrande and weak German business confidence data prompted investors to book some profit after a mid-week rally.

European sportswear makers Adidas, Puma and JD Sports fell about 3% each after U.S. rival Nike cut its fiscal 2022 sales expectations and predicted delays during the holiday shopping season due to a supply chain crunch.

Retail stocks were the top decliners in Europe, down 1.5%, while the region-wide STOXX 600 fell 0.8%. But a three day rally put the index on course for small weekly gains.

"Equities have rallied to take a pause early this morning faced with the likely default of Evergrande," said Sebastien Galy, senior macro strategist at Nordea Asset Management.

Investor worries over Evergrande resurfaced as a deadline for paying $83.5 million in bond interest passed without remark from the company, putting it closer to a potential default.

Meanwhile, a survey by Ifo Institute showed German business morale in September fell for the third straight month, hit by supply chain woes that are causing a "bottleneck recession" for manufacturers in Europe's largest economy.

Germany's DAX fell 0.8%, heading into the weekend when the country will vote to elect German chancellor Angela Merkel's successor.

Latest poll showed support for the conservative CDU/CSU alliance, while the Social Democrats are clinging to their lead.

"Although there is much noise surrounding the outcome, the possible coalition permutations are labyrinth and will almost certainly not be clarified on Monday or next week," said Jeffrey Halley, senior market analyst at OANDA.

"The election may be good for some intra-day volatility in the euro on Monday morning."

The benchmark STOXX 600 is on course to end September in the red after seven consecutive months of gains as rising energy prices and supply-chain bottlenecks fed into fears of inflation, while major central banks plan to cut pandemic-era stimulus.

However, European Central Bank President Christine Lagarde said in an interview aired on CNBC that many of the drivers of a recent spike in euro zone inflation are temporary and could fade in the next year.

British drugmaker AstraZeneca jumped 2.6% after the company said its cancer drug Lynparza met its primary goal in a late-stage trial.

Italy's utilities Enel and Eni inched

higher after the government set aside more than 3 billion euros ($3.5 billion) to curb a strong increase in retail energy bills.