European stocks dip at the end of holiday-shortened week

• STOXX 600 set for small weekly rise
• Luxury, autos, miners lead declines
• Tullow Oil surges on Ghana tax exemption

Updates with London morning prices

By Sruthi Shankar

Jan 3 (Reuters) - European stocks dipped at the end of a holiday-shortened week on Friday, with traders focussed on economic data for clues on the path of interest rates and potential changes in U.S. policies under a Donald Trump presidency.

The pan-European STOXX 600 index .STOXX was down 0.2% by 0922 GMT. But it is on course for a 0.7% rise for the week marked by light trading activity as traders returned from their New Year holidays.

Swiss stocks .SSMI rose 0.2% in their first trading session of 2025. The German DAX .GDAXI dipped 0.3% and France's CAC 40 .FCHI slid 0.6%.

China-exposed sectors such as miners .SXPP, luxury stocks .STXLUXP and automakers .SXAP came under pressure even after a Beijing official said the country would sharply increase funding from ultra-long treasury bonds in 2025 to spur business investment and consumer-boosting initiatives.

Investors have been worried about China's economy and a looming trade war with the U.S. ahead of Trump's presidential inauguration on Jan. 20.

U.S. stock markets recorded a strong showing in 2024, helped by optimism around artificial intelligence and the Federal Reserve's interest rate cuts.

The STOXX 600 also hit record highs last year, although concerns about a slowing European economy and political turmoil in Germany and France limited its gains.

"Given the super-stellar year for U.S. stocks in 2024, it's not surprising a bit more caution has crept in amid uncertainty about monetary policy, especially with unpredictable changes from the White House expected," said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

Traders are awaiting U.S. manufacturing activity data as well as speeches by the Fed and the European Central Bank officials later in the day.

ECB policymaker Yannis Stournaras said on Thursday he expected the bank's main interest rate to be cut to 2% by the autumn. That meant another 100 basis points of easing this year, roughly in line with traders' expectations.

Federal labour office figures showed that the number of people out of work in Germany rose less than expected in December.

Among stocks, Tullow Oil TLW.L surged 12% after the West Africa-based company was exempted from a $320 million tax on its Ghana operations.

Luxembourg-based steel group ArcelorMittal MT.AS dropped 3.6% after reports said U.S. President Joe Biden has decided to officially block Nippon Steel's 5401.T proposed purchase of U.S. Steel X.N.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Mrigank Dhaniwala and Shilpi Majumdar)

((sruthi.shankar@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 6182 2787;))