By Sudeshna Ghoshal and Johann M Cherian
Sept 2 (Reuters) - European shares slipped to a one-month low on Wednesday, pressured by a global bond rout as escalating tensions in the Middle East stoked worries about energy-induced inflation.
The pan-European STOXX 600 was down 0.3% at 645.42 points by 0837 GMT, with retailers leading a majority of sectors lower with a 1.5% drop.
Brent crude prices traded above $95 a barrel, adding to inflation worries as the U.S. and Iran traded fresh strikes overnight
in the most serious escalation of the conflict between the two countries in weeks.
Europe is seen as especially vulnerable to the months-long conflict given its reliance on energy imports, but strong earnings during the latest reporting season were a relief to investors and cushioned some of the STOXX's losses on signs that companies were coping better-than-expected.
"We remain 'Attractive' on Eurozone equities despite the near-term pressure from energy prices, bond yields, and the prospect of another ECB rate increase," Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note.
"Improving activity, stronger earnings, and reasonable valuations support further gains."
Elevated government debt in regional economies, such as France, Italy and Britain has been in focus as higher interest rates could add to fiscal burdens.
The yield on German 10-year bonds hit their highest since April 2011. Investors see a 35% chance that the European Central Bank's deposit rate could hit 3% by March 2027, up from around 25% last week, LSEG-compiled data showed. [EUR/GVD]
Germany's DAX shed 0.3%, while France's CAC 40 dropped 0.4% to touch a near two-month low. French stocks took a beating last week on fiscal concerns ahead of next year's election.
Higher rates are seen as broadly positive for lenders and on Wednesday, banking stocks helped limit losses on the STOXX index.
Deutsche Bank AG rose 2.2% after Goldman Sachs upgraded the shares to "buy" from "neutral", while Societe Generale SA shed 1.2% following a downgrade to "neutral" from "buy" by the brokerage.
Lottomatica tumbled 9% after the Italian betting firm said it will take over Spain's Cirsa to create a combined entity. Cirsa jumped 16%.
Nokia Oyj rose nearly 1.7% after index provider STOXX said the Finnish telecom equipment maker will rejoin the Euro STOXX 50 and replace Volkswagen. The automaker's shares dropped 2.2%.
(Reporting by Sudeshna Ghoshal and Johann M Cherian in Bengaluru; Editing by Saumyadeb Chakrabarty and Mrigank Dhaniwala)
