European shares fell on Tuesday, led lower by miners as copper prices slid on worries over Chinese demand, while the dollar hit its highest in almost two weeks after Federal Reserve officials signalled US interest rates could still rise this year.

The US central bank held policy steady last week, citing risks to global growth. But Atlanta Fed President Dennis Lockhart had said on Monday he still expected rates would rise this year while St. Louis Fed chief James Bullard said there was a chance of a hike next month.

By contrast, European Central Bank officials have been stressing monetary policy in the euro zone will remain loose for some time. Governing Council member Ewald Nowotny said on Monday ECB rates would stay low as long as growth did.

This divergence between the policy outlooks of the Fed on the one hand and the ECB and Bank of Japan on the other helped push the dollar to its highest point since September 10 against a basket of currencies.

The euro was down 0.2 per cent at $1.1162, having hit a high of $1.1459 on Friday. The dollar eased 0.4 percent to 120.03 yen per dollar but was well above Friday lows.

“As long as the markets continue to calm down, particularly emerging markets, there is definitely a reason to trade the dollar slightly higher, but not too much,’’ said Commerzbank FX strategist Esther Reichelt in Frankfurt. "Too much dollar strength could worsen the inflation outlook and could lead to the Fed not hiking."

The pan-European FTSEurofirst 300 stocks index fell 1.6 per cent. An index of mining shares dropped 3.8 per cent after copper retreated 2.1 per cent.

Analysts will pay close attention to Chinese factory activity data due on Wednesday.

“If China manufacturing numbers come in better than expected tomorrow, we could see a rebound in mining stocks for some days, but the sector’s medium-term outlook remains bearish,’’ Christian Stocker, equity strategist at UniCredit in Munich

German carmaker Volkswagen, which has admitted cheating vehicle emissions tests, tumbled a further 5.7 per cent as the investigation spread to Asia.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.5 per cent. Chinese shares rose, with the Shanghai Composite and the CSI300 index of the largest listed companies in Shanghai and Shenzhen both up about 0.9 per cent.

Japanese markets were closed for a holiday.

The prospect of higher US interest rates lifted U.S. financial shares, helping Wall Street to modest gains.

However US index futures were last down 0.9 per cent, suggesting the S&P 500 would open lower.

Expectations of a prolonged period of low ECB rates pushed down yields on low-risk euro zone debt. German 10-year Bunds were yielding 0.66 percent, down 2.3 basis points.

The ECB launched a trillion euro bond buying programme in March, but has failed to sustainably lift the market's long-term inflation expectations.

“I’m not too convinced that they are signalling they are ready to do something in October but it does support our view that if nothing changes between now and December, the ECB may have to add more stimulus,’’ said Elwin de Groot, senior market economist at Rabobank.

Oil prices fell as concerns over global growth dented the outlook for demand and as traders took profits from a rise of 3-4 per cent on Monday.

Brent crude, the global benchmark, was down 70 cents a barrel at $48.21. Gold traded at $1,135.60 an ounce, steadying after a 0.5 per cent drop on Monday.

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