- Italy's inflation drops
- US factory orders decline
- ECB expected to act on falling inflation

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European stocks were mixed as investors weighed Italian inflation data and a report on US factory orders.

Italy's harmonised index of consumer prices (HICP), measured under the European Union methodology, rose 0.6% on an annual basis in January, after recording a 0.7% gain in December, preliminary estimates from statistical office Istat showed.

Month-on-month, HICP decreased by 2.6% in January, more than forecast. Prices were dragged down by food, alcohol and tobacco.

Stocks fell following the release of the report but picked up slightly after a less-than expected fall in US factory orders.

US factory orders dropped by 1.5% in December after a revised 1.5% gain the month before; analysts had predicted a 1.8% fall.

ECB expected to act on falling inflation

Credit Suisse said it expects euro-area inflation to fall further, prompting the European Central Bank (ECB) to take the deposit rate marginally into negative territory and a cut in its main policy rate in March or April.

With inflation currently at 0.7%, well below the ECB's 2% target, Credit Suisse said the monetary authority is unlikely to remain idle.

The broker expects the central bank to move in March or April, but said the possibility that it would bring forward the decision to this Thursday's policy meeting is a risk.

"We expect headline and core to hit a new low in March at 0.4% year-on-year. 2014 inflation is likely to be well below the ECB December staff projections, and prospects for the medium term have also weakened in our view," the broker said.

ARM, BG Group

ARM Holdings tumbled after the chipmaker reported a drop in fourth quarter profit, reflecting an impairment charge.

BG Group edged lower after the UK natural gas producer posted a quarterly loss as Egyptian exports were disrupted and costs rose.

UBS and Munich Re advanced after they both posted quarterly earnings that beat analysts' expectations.

Banco Comercial Portugues rallied after posting a smaller annual loss than analysts had forecast.

Vestas Wind Systems declined after saying it seeks to raise capital.

BP slumped as the oil giant said fourth-quarter profit fell to $2.8bn from $3.9bn a year earlier.

Premier Oil was up after Simon Lockett said he will step down as Chief Executive.

The euro fell 0.15% to $1.3505.

Brent crude futures dipped $0.066 to $105.970 per barrel, according to the ICE.

RD

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