European stocks were set to edge lower on Tuesday, adding to the previous session's losses as investors fear that rising prices combined with a slump in the U.S. housing market could drag the world's biggest economy into stagflation.
Financial bookmakers, or spread betters, in London expected Britain's FTSE-100 index to open between 4 and 10 points lower, the German DAX 28 to 36 points lower and the French CAC 40 14 to 22 points lower.
The pan-European FTSEurofirst 300 index lost 1.6 percent on Monday, closing at 1,491.7, its weakest finish since Nov. 27, as worries over inflation hit global markets and curbed expectations of further rate cuts by the Federal Reserve.
Stagflation, when prices rise and growth stagnates, was last seen in the late 1970s. It could pose a dilemma for the Fed as policies aimed at boosting economic growth may fuel inflation, while policies used to fight inflation could weigh on an economy already grappling with fallout from the housing slump.