European stocks subdued as corporate news outweighs US credit downgrade

By Sruthi Shankar and Purvi Agarwal

May 19 (Reuters) - European stocks closed flat on Monday, following a five-week winning streak, as declines from a surprise U.S. credit rating downgrade were offset by upbeat corporate updates.

The pan-European STOXX 600 index .STOXX pared earlier declines to close 0.1% higher, hovering around the seven-week intraday high it touched on Friday.

Credit rating agency Moody's cut its ratings on U.S. debt on Friday, citing concerns about the nation's growing $36 trillion debt pile, which sent jitters across global markets earlier in the day.

"The downgrade reflects what markets already know: we're in a new fiscal regime defined by austerity via tariffs and caps... Don't overreact to the downgrade itself as history shows these calls often lag the fundamentals," said Lale Akoner, global market analyst at eToro.

Wall Street's main indexes were lower, and longer-dated U.S. Treasury yields rose, though were off their session peaks. .N

Meanwhile, U.S. President Donald Trump's sweeping tax-cut bill, which had been stalled for days, won approval from a key congressional committee on Sunday, while Treasury Secretary Scott Bessent said in television interviews that President Donald Trump will carry out tariff threats if trading partners do not negotiate in "good faith" on deals.

"There's some issues around the tariffs coming back and reminding everyone that while we've seen some de-escalation, it's not kind of all over and done with," said Richard Flax, chief investment officer at Moneyfarm.

De-escalation in U.S.-China tariff war and hopes of interest rate cuts from the European Central Bank have helped regional markets recover from the early April slump when Trump announced "reciprocal" tariffs, with Germany's DAX .GDAXI touching a record high on Monday.

Travel and leisure stocks .SXTP were the biggest gainers on the index. Ryanair RYA.I rose 4.8% after the Irish low-cost carrier reported strong demand across Europe and projected that fares would rebound and recover much of the decline that dented profit last year.

Peers Lufthansa LHAG.DE and EasyJet EZJ.L rose 2.6% and 3.2%, respectively.

BNP Paribas BNPP.PA rose 3.4%, one of the biggest boosts, after the French bank announced a share buyback plan worth 1.08 billion euros ($1.21 billion).

Meanwhile, Britain agreed the most significant reset of defence and trade ties with the European Union since Brexit by reaching a deal that includes a security and defence pact, fewer restrictions on British food exporters and visitors, and a contentious new fishing agreement.

Some luxury stocks declined after China's retail sales data for April missed expectations. Moncler MONC.MI dropped 2.2%, LVMH LVMH.PA fell 1.1%, while the broader index .STXLUXP was down 1%.

Volkswagen VOWG.DE fell 5.2% to the bottom of the STOXX 600 as it traded ex-dividend.

($1 = 0.8921 euros)