By Sudeshna Ghoshal
Sept 15 (Reuters) - European shares fell to three-month lows on Tuesday as rising oil prices and bond yields continued to dampen investors' risk appetite ahead of the U.S. Federal Reserve's rate decision.
The pan-European STOXX 600 was down 0.3% at 634.18 points, its lowest closing level since June 12. Most major regional bourses also edged lower.
Banks and financial services stocks were among the biggest drags, falling 0.9% and 1.9%, respectively. UBS dropped 3.4%, making it among the top
decliners on the STOXX 600.
The sector came under pressure a day after Bank of America CEO Brian Moynihan warned that the U.S. lender's investment banking fees could drop by at least 10% in the third quarter, and that it expects sales and trading revenue to be nearly flat.
"The warning triggered worries that the bank could not carry on with strong earnings, which in turn helped readjust the earnings outlook to the downside," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
"That's a big fear that the bank earnings may not be as strong as they have been in the last quarter... and that is pulling the valuation (and) the earnings outlook lower."
Elsewhere, cosmetics group L'Oreal overtook Louis Vuitton owner LVMH to become France's most valuable listed company, as luxury groups remain under pressure from slowing sales and weak earnings.
It is the first time since 2017 that a non-luxury company has held the top spot on the Paris market at the close.
LVMH shares fell 2.6%, while the broader European luxury gauge slid 1.5%.
Higher borrowing costs added to the cautious mood. The benchmark U.S. 10-year Treasury yield breached 5% on Monday, reaching its highest level in nearly two decades, while benchmark euro zone yields climbed to 17-year highs. [US/]
Most STOXX 600 sectors traded lower, though energy stocks rose 1.3% as oil prices gained over 2% on the day. Attacks on energy infrastructure in the Gulf and the Russia-Ukraine war zone heightened supply concerns, reinforcing inflation fears and prompting investors to price in further rate hikes from major central banks. [O/R]
The European Central Bank raised rates for the second time this year last week. Investors are now focused on the Fed's decision on Wednesday, with traders pricing in more than a 90% chance of a rate hike, according to LSEG data.
On the data front, British job vacancies fell to a four-year low ahead of the Bank of England's policy decision on Thursday, when it is expected to leave rates unchanged. In Germany, investor morale stabilised in September, while views on current economic conditions improved markedly.
Among other movers, Puig shed 2.2% after the Spanish beauty group said on Monday it would take full control of ISDIN in a €1.20 billion ($1.41 billion) deal.
(Reporting by Sudeshna Ghoshal and Ragini Mathur in Bengaluru; Editing by Diti Pujara and Timothy Heritage)
