FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, August 18, 2025. REUTERS/staff/File Photo

By Tristan Veyet and Johann M Cherian

(Reuters) - European shares slipped on Tuesday, led by rate-sensitive banks and insurers, as investors grew cautious ahead of the U.S. Federal Reserve's highly anticipated monetary policy verdict on Wednesday.

The pan-European STOXX 600 index dropped 0.13% to 555.42, as of 0822 GMT, driven by banks and insurance stocks, which were down about 1% each.

The Fed will kick off its two-day policy meeting later in the day, with markets pricing in a 25-basis-point interest rate cut announcement on Wednesday, potentially its first dovish policy verdict this year following signs of a weaker U.S. job market. Some traders see a potential 50-bp cut.

"If the Fed did (cut by) 50 bps, you could interpret that things were worse than we thought they were, that the jobs market was slowing down or there was something happening with economic figures that we weren't seeing. That could be interpreted either way because we're in a market which can flip very quickly," said Rebecca Chesworth, a senior equities strategist at State Street Investment Management.

The decision will also come at a time when investors have also been worried about political interference in the U.S. central bank's independence.

The U.S. Senate confirmed President Donald Trump's nominee Stephen Miran to the Fed's Board of Governors, while Lisa Cook will also attend the meeting, as an appeals court said Trump could not fire her.

Meanwhile, shares of hiring firms took a hit after SThree forecast annual pre-tax profit well below market expectations, sending shares of the UK firm as much as 21% down to their lowest level since 2009.

Other European recruiters including Hays and Randstad lost about 2.5% each, while Adecco lost nearly 4%.

In a bright spot, luxury stocks rose 0.9% to hit their highest level since late July.

French luxury stocks have come under greater focus after designer Giorgio Armani's death, who included directions on the possible sale of his fashion house in his will, giving priority to LVMH, L'Oreal and eye wear leader EssilorLuxottica.

L'Oreal lost 2% after Jefferies downgraded the cosmetics giant to "Underperform" from "Hold" earlier.

Among others, Schindler fell 2.7% after an investor sold shares of the lift maker through an accelerated bookbuilding process at about an 8.4% discount to the stock last close.

BNP Paribas rose 0.3% in choppy trading after the French bank extended its guidance to 2028 signalling confidence in the longer-term outlook.

(Reporting by Tristan Veyet in Gdansk, Johann M Cherian in Bengaluru, editing by Rashmi Aich)