European shares drop on caution ahead of US payrolls report

European shares slipped for a fifth straight session on Friday as caution prevailed ahead of the crucial US jobs data, the last such labour market report before the Federal Reserve's monetary policy decision on Sept. 18.

The pan-European STOXX 600 index fell 0.6 per cent. The index has dropped 3 per cent so far this week, and is set to snap its four-week winning streak.

Germany's DAX index was down 0.7 per cent after data showed the country's industrial production fell by 2.4 per cent in July, compared with analysts' prediction of a 0.3 per cent drop.

The UK's benchmark FTSE 100 slid 0.5 per cent. British house prices rose by 0.3 per cent in August from July versus an expected rise of 0.2 per cent on the month.

Energy stocks were the biggest drag on the markets, declining 1.1 per cent as oil prices hovered near 14-month lows, followed by rate-sensitive banks that fell more than 1.2 per cent.

All eyes will be on the US non-farm payrolls data at 1230 GMT which is expected to show the American economy added 160,000 jobs in August, compared with 114,000 in July. The unemployment rate is seen falling to 4.2 per cent from 4.3 per cent.

"Due to the mixed economic signals, along with the focus on Fed's interest rate cuts, the market reaction to this report is difficult to predict," said Kathleen Brooks, research director at XTB.

"There are some who argue that this payrolls report is a downside risk for US stock markets whatever the outcome."

Money markets currently see a 57 per cent chance of a 25-basis point cut by the US central bank in September and a total easing of 111 bps by the end of 2024.

The euro zone's revised GDP data for the second quarter is due at 0900 GMT.

Among stocks, Raiffeisen Bank fell 7.4 per cent after a Russian court froze the shares of the lender's Russian unit, which the company had planned to spin off.

Volvo Cars was down 4.1 per cent to a seven-month low. The Swedish automaker slashed its margin and revenue ambitions for a second time in a year on Thursday, a day after it abandoned its EV-only target by 2030.

Airbus declined 1.1 per cent after Europe's air safety regulator ordered inspections on engines of its A350-1000 jets following an engine fire on a Cathay Pacific flight earlier this week.

France's Elis slipped 16 per cent after a report that the workplace supplies provider approached Vestis, the former uniform rentals business of Aramark, with an acquisition offer.

On the flip side, Poland's InPost rose 8.2 per cent as it decides whether it will use its call option for the remaining stake in Britain's Menzies by the end of this year.