By Tharuniyaa Lakshmi
Aug 19 (Reuters) - European shares hovered around a two-week low on Wednesday, as oil prices remained elevated on the back of Middle East tensions, supporting energy stocks but raising questions over inflation and growth, while investors awaited U.S. Federal Reserve's July meeting minutes.
A selloff in euro zone government bonds, which had pushed long-dated yields to their highest levels in more than a decade on Tuesday, paused as the U.S. Treasury market stabilised. Long-end
sovereign yields act as an anchor for the price of nearly every other asset in financial markets, including mortgage rates.
“Investors will be relieved that European stocks stabilised after bond market wobbles earlier this week,” said Dan Coatsworth, head of markets at AJ Bell.
“Bond yields had jumped on fears of new inflationary pressures and what that could mean for interest rates, triggering a shift in investor risk appetite."
The pan-European STOXX 600 was flat at 652.36 points, as of 0933 GMT.
U.S. President Donald Trump said on Tuesday that no talks were taking place with Iran and insisted the Strait of Hormuz was open, contradicting Iran's assertion that the critical waterway remained shut to shipping.
Energy was the top-performing sector, up 0.6%, tracking higher oil prices, with Brent crude trading at around $91 a barrel. [O/R]
Defence stocks also climbed 0.4% after RBC and Barclays initiated coverage of several European defence firms, citing increased military spending and strong medium-term growth prospects.
On the flip side, media stocks fell the most, down 0.7%, with WPP, Pearson and Publicis Groupe down between 1.5% and 0.9%.
INFLATION RISES
Euro zone consumer price inflation rose to 0.2% in July, in line with expectations.
Meanwhile, in Britain, consumer price inflation rose to 2.9% in July from a 15-month low of 2.6% in June, data from the Office for National Statistics showed, reflecting a 13% increase in the energy price cap set by regulator Ofgem last month.
The Fed's minutes, due later in the day, could provide investors fresh clues on the outlook for interest rates.
Among individual European stocks, FLSmidth & Co rose around 7.9% to the top of the STOXX 600 after the Danish industrial firm reported second-quarter revenue above analysts' estimates.
Shares in Straumann fell around 6.3%, making it the worst performer on the STOXX 600, after the Swiss dental implants maker announced a CEO change, overshadowing first-half results that slightly beat market expectations.
Geberit rose 7.2% after the Swiss plumbing products maker reported better-than-expected second-quarter results.
(Reporting by Tharuniyaa Lakshmi in Bengaluru; Editing by Rashmi Aich and Harikrishnan Nair)
