By Sruthi Shankar

(Reuters) – European stocks looked on course for their worst quarterly showing in more than two years on Tuesday, as uncertainty around interest rates and the administration’s policies by Trump halted a rally that had pushed many markets to record highs this year.

The pan-European rose 0.1% in the last trading session of the year, but is on track for a quarterly decline of 3.4% – the biggest since July 2022.

Trading volume was thin ahead of the New Year holiday, with bourses in Germany, Italy and Switzerland already closed on Tuesday. Those in France, Spain and the UK are set for early closure.

“The cautious sentiment is in line with global trends, as investors restore positions ahead of the New Year amid uncertainty over monetary policy and the economic outlook under a presidency of Trump,” said Matt Britzman, senior equity analyst at Hargreaves (LON:) Lansdowne.

High valuations, rising Treasury yields and uncertainty about 2025 have all contributed to risk-on sentiment over the past few sessions on both sides of the Atlantic but the main US indices posted a strong gains this year.

An increase of almost 24% in 2024 while the STOXX 600 rose only 5.4% as the economic slowdown in Europe and China, problems with automakers and the political turmoil in France weighed on the situation.

German stocks have outperformed broader European markets this year with a nearly 19% jump, as political instability and worries about a widening fiscal deficit drag on , pushing it down 3% year-to-date.

European shares hit an all-time high in September, riding the coattails of an AI-driven surge on Wall Street as well as supported by interest rate cuts from the European Central Bank.

The UK is looking at a nearly 5% rise in 2024, the fourth consecutive year of gains.

Sector-wise, banks and insurers have led the surge this year, while food and beverage stocks and automakers have underperformed.