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Europe: Bond sell-off hits shares but boost banks

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[LONDON] European shares pulled back on Wednesday, with most sectors except rate-sensitive banks in the red as concerns grew over the direction of the bond market.

Bond yields globally hit multi-month highs following a report that Chinese officials have recommended slowing or halting purchases of US government bonds.

The yield on 10-year US Treasury hit a 10-month high, while Germany's 10-year bond yield also hit its highest since the European Central Bank extended and cut its bond buying scheme in October.

The pan-European Stoxx 600 index fell 0.4 per cent, pulling back from a 2 1/2 year high hit on Tuesday, while euro zone blue chips declined by the same amount.

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Banks however surged 2.1 per cent to their highest in more than 2 years, as higher interest rates typically generate more revenues and profits for lenders.

"Higher rates could be coming in our view, and given the moves can be vicious when they finally arrive it seems sensible to position for such ahead of the event," Northern Trust Capital Markets analysts wrote in a note.

"Clearly banks should win in a rising rate environment; so too should commodities," they added.

UK's RBS rose 4.6 per cent, Germany's Commerzbank and Italy's Intesa Sanpaolo were among the biggest gainers in the sector, all up more than 4 per cent.

Traders said Italian banks led by Monte dei Paschi di Siena were also supported by Bank of Italy data showing a further decline in soured loans.

European pharmaceuticals, utilities and consumer staples fell as the rise in bond yields dimmed the appeal of their stable dividends.

Elsewhere, Tele2 tumbled 7.5 per cent, leading losers in Europe after the Swedish telecoms firm agreed to a US$3.2 billion takeover of cable TV company Com Hem.

Com Hem rose 3.4 per cent.

Altice, down 7.2 per cent, was another heavy faller with traders citing a downgrade to sell from Louis Capital Markets.

Metro Bank rose 4.3 per cent after an upgrade from Citi.

IG Group declined 4.4 per cent following conclusions of a review of the contracts-for-difference market by the UK's FCA.

Still in the UK, Sainsbury rose 2.2 per cent after the supermarket group reported a slight beat to forecasts for Christmas sales and said it was nudging up full-year profit guidance.

REUTERS