By Sudeshna Ghoshal
Oct 1 (Reuters) - European shares started the final quarter on a downbeat note on Thursday as investors turned risk-averse, with global government bond yields hitting multi-year highs.
The pan-European STOXX 600 was down 1.4% at 626.29 points by 0840 GMT, touching its lowest level in more than three months.
All European sub-sectors declined, with banks on track for their biggest one-day percentage drop since July 8, down 3.2%, while miners shed 2%.
Global bond yields have surged in
recent weeks as investors sold government debt, while soaring energy costs fuelled inflation concerns and the AI boom bolstered the economic outlook, reinforcing bets that interest rates could remain higher for longer.
Persistently high rates raise borrowing costs for companies and mortgage holders, while increasing governments' interest burdens.
Germany's 10-year government bond yield, the euro area's benchmark, was up one basis point after touching 3.6526% earlier this week, its highest level since June 2009.
Meanwhile, French 10-year government bond yield jumped to its highest level since 2002 as the government prepared to unveil its 2027 budget later in the session. France's CAC 40 fell 1.4%.
The outlook for equities remains closely tied to the path of interest rates, with investors assessing whether higher borrowing costs and elevated energy prices will outweigh signs of resilience in the euro zone economy.
Supporting the higher-for-longer rates narrative, data on Wednesday showed German inflation accelerated slightly more than expected in September.
"The sharp uptick in headline inflation points to further rate increases by the ECB. However, spillovers to core inflation were still only minor. This in turn argues for less tightening than priced by markets, in our view," Danske Bank analysts said in a note.
In other data, factory growth in the euro zone continued its upward march in September, hitting its fastest rate in more than four years, S&P Global's survey showed.
Oil prices held firm on the day as recovering Gulf crude exports and a surprise rise in US inventories eased supply concerns. [O/R]
Meanwhile, euro zone unemployment stood at 6.4% in August, in line with economists' expectations in a Reuters poll.
Among individual stocks, Zealand Pharma slumped 8.8%, making it the worst performer on the STOXX 600, after trial results for Boehringer Ingelheim's obesity drug survodutide.
UK's Gamma fell 2.6% after Dutch private equity firm Waterland dropped its takeover offer.
(Reporting by Sudeshna Ghoshal in Bengaluru; Editing by Sherry Jacob-Phillips)
