By Medha Singh
August 31 (Reuters) - European shares inched lower on Monday as fresh U.S.-Iran military strikes pushed oil prices and bond yields higher, while the benchmark STOXX 600 remained on track for a fifth straight monthly gain.
The pan-European STOXX 600 was down 0.1% at 655.54 points by 0712 GMT, with trading volumes likely to be subdued as London markets were closed for a bank holiday.
Germany's DAX dropped 0.7%, the most among regional indexes, ahead of inflation data from the euro zone's
largest economy that could offer clues on the European Central Bank's rate path. Euro zone inflation figures and U.S. payrolls data will be in focus later this week.
Investors have largely locked in expectations of a September ECB rate increase.
"With European inflation dynamics coming through this week, that probability may be massaged around the edges," Chris Weston, head of research at Pepperstone Group, said in a note."We turn the page on month-end and head into a data-dependent, central bank-focused September. With multiple central banks potentially tightening policy ... Treasury yields testing important levels and geopolitical risk remaining elevated, there is plenty for traders to navigate."
Germany's policy-sensitive two-year government bond yield hit its highest level since July 2024, taking cues from U.S. Treasuries after Federal Reserve Chair Kevin Warsh on Friday signalled interest rates may need to rise.
RISING INFLATION RISKS
Energy stocks firmed, tracking a more than 2% jump in Brent crude , which traded around $90.70 a barrel. TotalEnergies, Orlen and OMV rose between 1.8% and 3.8%.
U.S. forces struck two missile launchers on Iran's Larak Island in the Strait of Hormuz on Sunday, the first known U.S. military action against Iran since late July, prompting Tehran to launch attacks on two U.S. air bases in Jordan, Iranian media reported.
The rise in energy prices has reinforced inflation concerns at a time when investors are already bracing for further policy tightening. Still, a strong earnings season and continued enthusiasm around artificial intelligence are set to leave the STOXX 600 up 0.9% for August.
Finance leaders from the G20 gather in North Carolina on Monday and Tuesday as elevated energy and commodity prices linked to the Iran war weigh on global growth prospects.
Among individual movers, OHB gained 7.3% after the German satellite maker signed a contract worth nearly €1 billion ($1.2 billion) to develop and build 18 satellites for the European Union's IRIS² secure communications programme.
Bakkafrost dropped 7.4% and was among the top decliners on the STOXX 600 after the Faroe Islands salmon farmer reported second-quarter results.
(Reporting by Medha Singh and Sudeshna Ghoshal in Bengaluru; Editing by Nivedita Bhattacharjee and Sonia Cheema)
