By Susan Mathew and Bansari Mayur Kamdar

(Reuters) -European shares fell on Friday, wiping out earlier gains, after U.S. jobs data supported the case for the Federal Reserve’s aggressive policy tightening and investors raised their bets on ECB rate hikes following strong inflation numbers this week.

The pan-European STOXX 600 index fell 0.3% with volumes expected to be subdued due to holidays in Britain and China. It ended the tumultuous week 0.9% lower.

The rate-sensitive information technology sector led losses on the STOXX 600, while the auto sector declined 1.6% as France’s Faurecia slid 6.8%.

The auto parts supplier said it launched a 705 million euro ($758 million) capital increase to fund its acquisition of German rival Hella.

Investors ramped up their bets on ECB interest rate rises this year, and priced in a bigger, 50 basis-point hike at one of the bank’s policy meetings by October, following data this week showing record high inflation in the euro zone.

“In view of the dramatic inflation trend and the fact that the ECB is so clearly ‘behind the curve’, compared with the Fed, the ECB’s language should tend to become more hawkish,” Commerzbank analysts wrote in a note.

Data on Friday showed U.S. employers hired more workers than expected in May and maintained a fairly strong pace of wage increases, signs of labour market strength that will keep the Federal Reserve on an aggressive monetary policy tightening path.

European equity markets started the week on a stronger footing after China eased some COVID-19 restrictions and revealed more stimulus, but the optimism was swiftly undone by data that pointed to economies tipping into recession.

In France, growth in business activity in the country’s dominant services sector weakened in May compared to April, according to a survey. Germany’s services sector also showed signs of slowing growth.

The European Union’s partial ban on Russian oil imports, in retaliation for its invasion of Ukraine, also drove fears of inflation rising further.

“A recession, if any, will not occur this year but most probably in 2023. That said, we expect the market to discount more properly a lower momentum in the economy,” equity strategists at Generali Investments said.

Among other stocks, Italy’s Leonardo rallied 2.0% after Germany’s Rheinmetall made an offer for a minority stake in its OTO Melara cannon maker unit, according to a document and two sources close to the matter.

Rheinmetall has set a value of 190-210 million euros ($203.91- $225.37 million) as an indicative price for the 49% stake in OTO Melara.

(Reporting by Susan Mathew and Bansari Mayur Kamdar in Bengaluru; Editing by Shailesh Kuber, Anil D’Silva and Barbara Lewis)

By Hilary Russ

NEW YORK – For at least a decade, Burger King’s formula for European expansion has relied on a joint venture partnership, including a master franchisee, to open and operate new locations.

But now the fast-food chain has a whopper of a problem in Russia. It hasn’t been able to exit its partnership or close its roughly 800 franchised locations following Russia’s February invasion of Ukraine.

Burger King halted corporate support for its Russia locations in March. Parent company Restaurant Brands International Inc (RBI), which was formed in 2014 when Burger King merged with Tim Hortons, said on March 17 that it was trying to sell its stake in the joint venture.

However, the restaurants remain open and thriving in locations such as central Moscow where queues have become the norm. Demand has been helped by rival McDonald’s currently being closed ahead of a reopening under new branding later this month.

“I usually go to Burger King, I don’t care about McDonald’s,” said university teacher Elena Aleksandrova, 37, as she picked up a Whopper and soda on Friday at a Burger King in an underground shopping mall just outside the Kremlin.

McDonald’s struck a deal last month to sell its Russian business to one of its local franchisees, retaining an option to buy the business back within 15 years. Burger King’s exit is proving far more problematic.

Current sanctions by western countries against Russia sharply limit the pool of possible buyers, one person familiar with the matter said.

Reuters could not determine the status of any negotiations.

Part of the problem, lawyers said this week, is the complexity of its joint-venture-style master franchise agreement, which allows Burger King to profit from sales of Whopper burgers without the risk of using its own capital.

Unlike rival McDonald’s Corp, which owned the vast majority of its Russia locations, Burger King’s Toronto-based parent doesn’t own any of its own restaurants in Russia.

“There’s just a really complex contractual and legal atmosphere right now that’s giving franchisees and franchisors in Russia no good option,” said Liz Dillon, partner at Lathrop GPM in Minneapolis.

According to a March 17 open letter to employees from RBI International President David Shear, RBI holds a 15% stake in Burger King Russia Ltd, its Russia joint venture.

Additional partners are Russia’s state-owned bank VTB, which has been sanctioned by the United States and European Union, and Kyiv-based private equity and asset management firm Investment Capital Ukraine (ICU), Shear’s letter said.

And Alexander Kolobov, Burger King’s master franchisee in Russia, owns 30% of the joint venture, Kolobov told Reuters in an email in March.

RBI blamed Kolobov for refusing to shut restaurants, according to Shear’s letter. But Kolobov told Reuters at the time that he had never had full operational control and lacked the authority to close restaurants without agreement from all the joint venture partners.

A spokesperson for Kolobov said via email that he declined to comment on whether he was in talks to buy RBI’s stake of the joint venture. RBI referred Reuters back to Shear’s letter. VTB could not be reached for comment.

A franchisor “can’t physically or legally stop a franchisee from operating if they wish to do so” in the current situation, said Lee Plave, a franchise attorney at Plave Koch PLC in Virginia. “The legal remedies that are available take time, and even when you pursue them, you’d still end up in a Russian courtroom to enforce an order, which is an unlikely prospect at this time.”

To be sure, some lawyers told Reuters that forcing franchisees to close their locations is unfair to regular Russian people who had nothing to do with the government’s decision to invade Ukraine. “The franchisees in Russia are not the ones waging war on Ukraine. The customers who go into those stores are not the ones waging war,” said Beata Krakus, a franchise lawyer at Greensfelder in Chicago.

Leaving Russia also potentially exposes companies to a new law advancing there that would allow the government to seize local assets of western companies that exit – adding pressure on companies to remain.

Burger King’s parent and other U.S.-based companies will soon be subject to a new rule from the Biden Administration – taking effect June 7 – that limits their ability to provide “management consulting services” to anyone in Russia.

Some lawyers believe the rule could be read to cover services that brands normally provide to franchisees, including sourcing products, management techniques, inventory controls, site selection, operations manuals and even just taking a call seeking advice.

“It puts a lot of pressure on these companies,” said Erik Wulff, a partner at DLA Piper in Washington, who specializes in franchise law for global consumer product, clothing and footwear companies.

“What will likely happen in a number of these situations is that the U.S. partner will be bought out,” Wulff said. “At that point, it’s a distressed sale.”

(The story corrects spelling of lawyer’s surname in 18th paragraph.)

(Reporting by Hilary Russ; Editing by Diane Craft and Matt Scuffham)

By David Shepardson

WASHINGTON – U.S. airlines are stepping up their efforts to get the Biden administration to end COVID-19 pre-departure testing requirements for international air travel.

American Airlines Chief Executive Robert Isom said on Friday at a conference the testing requirements were “nonsensical” and were “depressing” leisure and business travel.

Airlines say many Americans are not traveling internationally because of concerns they will test positive and be stranded abroad. International U.S. air travel remains down about 14% from pre-pandemic levels.

Isom, who met with politicians in Washington on Thursday to discuss the issue, said 75% of countries American serves do not have testing requirements. The Centers for Disease Control and Prevention (CDC) requires travelers to test negative within one day before flights to the United States.

“We’re really frustrated and this is something that is damaging not only U.S. travel but it just doesn’t make sense,” Isom said.

He noted testing rules do not apply to people crossing U.S. land borders and noted the Boston Red Sox baseball team in April flew to Toronto to play the Blue Jays – but rode a bus home to avoid the testing requirements.

White House Press Secretary Karine Jean-Pierre said on Wednesday the administration was “constantly evaluating our policy…. And any decision on pre-departure testing requirement would be made by our health and medical experts.”

Delta Air Lines Chief Executive Ed Bastian told Reuters on Wednesday that dropping the requirements will boost travel. He said 44 of 50 countries Delta serves do not require testing.

“We know it will help induce and incent travelers to go abroad, bring more commerce in, more business in so hopefully they will get it done soon,” Bastian said.

Airlines for America, an industry group representing major carriers, and U.S. Travel met with a deputy White House COVID-19 coordinator Tuesday, who gave no indication of when the Biden administration might rethink the requirement.