By Johann M Cherian
(Reuters) -European shares slipped to a three-week low on Tuesday, pressured by a rise in bond yields, while Nestle's shares took a hit after the Swiss food giant ousted Chief Executive Laurent Freixe a year into his tenure.
The STOXX 600 index lost 0.6% and was at 547.87 points as of 0904 GMT, with rate-sensitive real estate and utilities declining the most among sectors.
Investors continued to fret about the sustainability of the debt of several countries in Europe and around the world,
sparking a selloff in longer-dated German and French bonds. [EUR/GVD]
Yields on 30-year German bonds hit their highest since 2011, while their French counterparts touched the highest since 2009. Bond yields move inversely to prices.
"A big part of the story in quarter one was expectations that governments will start spending money... and that will generate corporate profitability," Marija Veitmane, head of equity research at State Street Markets, said.
"We increasingly think that's really challenging and the governments really don't have that much fiscal space and when they try, the bond market is really kind of stopping them."
The STOXX 600 outperformed U.S. stocks during the quarter at a time when trade uncertainty dominated headlines, but has struggled since then.
The focus is also on Nestle, which fell 1% as CEO Freixe was removed for failing to disclose a romantic relationship with a subordinate. His shock departure threatens more volatility for the KitKat maker as it has struggled in a tough consumer environment and disruptive U.S. tariffs.
The wider Swiss blue-chip index dipped 0.1%.
In contrast, luxury stocks rose 1.6% as top names in the sector saw brokerage upgrades. Kering gained 3.5% and LVMH added 3.2% after HSBC upgraded both the stocks to "buy" from "hold".
Partners Group gained 4.1% after the Swiss investment firm reported a profit increase during the first half of the year, while Ferrari climbed 1.5% as Deutsche Bank raised its rating on the sportscar maker to "buy" from "hold".
InPost lost 4.6% after the Polish parcel locker company reported a fall in quarterly core earnings and a slowdown in core earnings growth.
Meanwhile, data showed euro zone inflation rose 2.1% in August on an annual basis, more than the 2% increase that economists were expecting, which is also the European Central bank's target.
Earlier on Tuesday, policymaker Isabel Schnabel told Reuters that the ECB should keep interest rates steady as the euro zone economy is holding its own in the face of U.S. tariffs and inflation may still come in higher than expected.
(Reporting by Tristan Veyet in Gdansk and Johann M Cherian in Bengaluru; Editing by Nivedita Bhattacharjee and Sonia Cheema)
