By Scott Kanowsky 

-- European stock markets slipped on Wednesday, with banks paring back early gains, as investors eye developments in the U.S. financial sector and make bets on the path ahead for Federal Reserve monetary policy.

By 04:40 ET (08:40 GMT), the pan-European was down by 0.55%, the in the U.K. dipped by 0.54%, 40 declined by 0.71% and the in Germany decreased by 0.37%.

The index, which has been under the spotlight as traders fret over the potential of worldwide contagion from the collapse of Silicon Valley Bank last week, was also lower having risen shortly after the market open.

Banks in the U.S. had led a recovery on Wall Street which partly stemmed from that read largely as expected for February. The data, coupled with the pressure on the banking sector, spurred bets that the Fed will have limited room to hike .

Markets are betting that growing pressure on lenders, coupled with signs that overall inflation eased in February, will elicit a less hawkish Fed in the coming months. But traders are still positioning for a 25 basis point hike by the Fed next week, as stubborn showed that price pressures still remained relatively elevated in the country.

The rally in the U.S. continued on into Asian stocks, with technology-heavy bourses in Hong Kong and South Korea rising in particular. Broader markets in the region also increased as fears of a U.S. banking crisis eased after the government intervened in the sector to protect depositors following the collapse of Silicon Valley Bank.

Back in Europe, focus is turning to a key meeting of the European Central Bank this week. ECB policymakers have previously signaled that they will hike by a further 50 basis points, meaning observers are on the lookout for any clues about future decisions.

In corporate news, Zara-owner (BME:) posted a 29% jump in annual profit, despite weaker returns in the final quarter, thanks to "historic" growth in sales both in its physical stores and online. Shares are in the red in early trading.

German automaker Bayerische Motoren Werke AG (ETR:) inched slightly higher after the company halted any upcoming price increases for its vehicles in 2023 and said deliveries of cars to customers would inch up as supply chain constraints ease.

Elsewhere, oil markets rallied, with prices for the U.S.-benchmark West Texas Intermediate crude rebounding from its lowest close in three months, as traders gauge the outlook for demand and banking sector turmoil. futures traded 1.40% higher at $72.33 a barrel, while the contract moved up by 1.32% to $78.47 per barrel.

Additionally, fell 0.95% to $1,892.75/oz, while traded broadly near the flatline at 1.0735.