Europe's STOXX 600 slips as elevated bond yields outweigh tech gains

By Sudeshna Ghoshal and Purvi Agarwal

Sept 29 (Reuters) - European shares closed lower on Tuesday as higher bond yields dampened risk appetite, outweighing gains in technology stocks that rose on the back of renewed AI optimism.

The pan-European STOXX 600 .STOXX ended 0.1% lower, reversing gains from earlier in the session. Most regional indexes also lost ground.

Global bond yields remained near multi-decade highs as robust growth and elevated energy costs are expected to push up global interest rates. Oil prices, however, reversed course to fall close to 2%. O/R
European economies are particularly vulnerable to surging energy prices because of their reliance on fuel imports.

Most sectors on the STOXX 600 were lower, with heavyweight banks .SX7P down 0.5%. Energy .SXEP and food and beverages stocks .SX3P were the biggest losers with a 1.4% fall each.

"With near-term inflation risks still tilted higher as energy prices remain elevated, the long end (longer-dated bonds) has little protection against another bout of turbulence," said Laura Cooper, global investment strategist and head of macro credit at Nuveen.

"Stocks can live with yields rising on strong growth expectations because robust earnings provide an offset to the higher discount rate."

Despite raising interest rates twice this year, European Central Bank President Christine Lagarde said on Monday that a measured response to monetary policy was appropriate as the inflation surge was yet to generate significant second-round effects.

On the flip side, technology shares .SX8P led sectoral gains, rising 2.5% to their highest level in a month. Semiconductor stocks AT & S Austria Technologie & Systemtechnik AG ATSV.VI and Soitec SOIT.PA gained more than 9% each.

Anthropic is making a massive bet that AI will transform the global economy more profoundly than industrialization, electricity and the internet, according to its IPO prospectus seen by Reuters. The IPO is seen valuing the AI lab at more than $2 trillion.

"It's the vision and the projections to the extent to which Anthropic believes AI will be a game changer for economies around the world that seem to have lifted demand for European tech stocks," said Susannah Streeter, chief investment strategist at Wealth Club.

Earlier this month, executives from several major AI companies urged a slower pace of development over concerns about misuse, weighing on technology stocks already pressured by rising bond yields.

Among individual stocks, Lindt LISN.S slipped 8.7% to become the STOXX's biggest decliner, after the Swiss chocolatier cut its 2026 sales forecast for the second time this year.

Julius Baer BAER.S rose 7.2% after Switzerland's financial regulator FINMA closed enforcement proceedings over private debt loans and client ties to two "politically exposed" Russian individuals.

Shares of Legrand LEGD.PA advanced 6% after the French electrical and digital building infrastructure group raised its medium-term targets.