German share price index DAX graph is pictured at the stock exchange in Frankfurt
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, June 2, 2022.

European shares fell on Tuesday as investors worried about the squeeze to economic growth from aggressive monetary policy tightening by central banks in a bid to tame rising inflation.

The pan-European STOXX 600 index fell 0.5%, giving back half of Monday's gains, with tech shares leading declines.

Australia's central bank raised interest rates by the most in 22 years and flagged more tightening to battle rising prices. This comes as investors await a European Central Bank (ECB) meeting and U.S. inflation data this week.

The ECB has signalled rate hikes starting next month, and investors wait to see if record high inflation in May would lead to a change in stance at Thursday's meeting.

"The bar for a hawkish surprise on Thursday (from the ECB) is set quite high," strategists at ING said.

"The only really interesting question is why it doesn't start hiking rates immediately instead of waiting until July."

On Friday, data is expected to show a rise in May U.S. consumer prices, leading to some speculation that the Federal Reserve may need to carry on hikes beyond July.

Underlining slowing economic growth, data showed German industrial orders fell more than expected in April, the third decline in a row, driven by weakened demand and heightened uncertainty due to the Russian-Ukraine conflict.

Rate-sensitive technology stocks dropped 1.1%, with French software maker Dassault Systemes shedding 2.5% after a brokerage downgraded the stock.

London's FTSE 100 fared better, trading flat as the pound weakened. [GBP/]

UK Prime Minister Boris Johnson seeks to shore up his position among senior ministers with a raft of new policies, after surviving a no-confidence vote on Monday.

"We think markets are overpricing the impact of recent political noise on the UK economy and we expect volatility... to decrease over the coming days," ING said.

Among individual stocks, Biffa jumped 28.4% after it received a possible buyout offer from affiliates of private equity firm Energy Capital Partners, valuing the British waste-management specialist at about 1.36 billion pounds ($1.69 billion).

British fashion chain Ted Baker plunged 21.2% after it said its preferred bidder backed out of making a takeover offer.

SAS slumped 9.5% after the Swedish government said it would not inject new capital into the loss-making airline and did not aim to be a long-term shareholder in the company.