By Sudeshna Ghoshal and Purvi Agarwal
Oct 8 (Reuters) - European shares fell on Thursday as banks slid to a more than three-month low, while a fresh bond selloff and elevated oil prices stoked fears that higher inflation could hurt economic growth.
The pan-European STOXX 600 index closed 0.8% lower, at a nearly four-month low.
European banks dropped 2%, with Germany's Deutsche Bank, Spain's Banco Santander, France's Societe Generale and Italy's UniCredit falling for a second day as euro zone bond yields
climbed towards their recent peaks. [GVD/EUR]
"What you see in the European banks is, this growing euro debt crisis is weighing on growth expectations at a time when energy prices are pushing inflation expectations higher and the ECB is not going to be able to step in a way to give relief to the market," said Ipek Ozkardeskaya, senior analyst at Swissquote.
France's benchmark CAC 40 fell 0.5% to a more-than-6-month low, with the country at the centre of investor concerns as it struggles to rein in a budget deficit exceeding 5% of GDP.
BOND YIELD JITTERS PERSIST
Euro zone bond yields rose sharply on Thursday as rising energy prices added to inflation concerns, while investors continued to dump debt issued by heavily indebted countries such as France and Italy, pushing their borrowing premiums higher.
"When oil prices are above $100, it is very hard for any developed bond market to perform well, especially those that are highly indebted," said Kathleen Brooks, research director at XTB.
"France is still on everyone's radar, and it seems likely that bond yields will continue to rise and remain elevated as the country fails to grapple with its fiscal issues, and as the ECB seems unwilling to step in."
A broad global bond selloff, fuelled by expectations of further central bank rate hikes and mounting concerns over government debt burdens, has driven yields across many euro area countries to multi-decade highs.
Most sectors on the STOXX traded lower. Energy shares were a bright spot as oil prices climbed more than 3% on persistent concerns about supply from the key Middle East producing region. [O/R]
While minutes from the Federal Reserve's latest policy meeting showed officials divided over the case for further rate hikes, ECB policymakers dampened near-term rate hike bets, arguing that underlying inflation trends revealed a more benign picture.
Among individual stocks, Argenx fell 15.8%, marking its biggest daily drop since December 2023, after the Netherlands-based biopharmaceutical company discontinued a Sjögren's disease trial after an analysis showed it was unlikely to meet its primary aim.
Healthcare stocks were the biggest percentage losers with a 2.5% decline.
London's Tesco added 5.2% after the food retailer raised the lower end of its full-year profit outlook.
(Reporting by Sudeshna Ghoshal and Purvi Agarwal in Bengaluru; Editing by Subhranshu Sahu, Mrigank Dhaniwala and Leroy Leo)
