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Europe: Stocks hit by bond jitters as US tax boost fades

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[MILAN] European shares pulled back on Tuesday in a broadly weaker market as a rally inspired by investor optimism about a tax reform in the United States lost its strength.

Expectations that the long-anticipated US tax bill will pass this week lifted the pan-European Stoxx 600 benchmark by as much as 0.2 per cent in morning trade.

But the index turned lower and accelerated losses in afternoon, ending down 0.4 per cent.

Traders said there was no clear catalyst but that jitters on the bond market, where Germany's 10-year government bond yield hit a three-week high with its biggest one-day jump in more than three months, had weighed.

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"Bond yields have flared up and that might have hurt stocks too," said Giuseppe Sersale, fund manager at Anthilia in Milan.

"The moves on the bond market could be linked to expectations of bigger bond issues by the German government as well as technical factors." Most sectors on the Stoxx ended in negative territory with utilities leading the decline, down 1 per cent. Italian power company Enel declined 2.7 per cent, hurt by a downgrade to neutral from outperform from Macquarie.

Top faller in Europe was Steinhoff, down 20 per cent, after the South African retailer hit by an accounting scandal said it had started to lose credit lines from lenders.

Among the gainers was chipmaker Dialog Semiconductor which rose more than 8 per cent after Tsinghua raised its stake in the company further to 9 per cent.

Tsinghua Unigroup has been adding to its stake since Dialog shares plunged in November on a report the power management chip maker might lose its biggest client, Apple.

Shares in AMS, another chipmaker, rose 8 per cent, but this wasn't enough to boost the tech sector, which fell back 0.5 per cent. The highly-valued tech sector has weakened in recent weeks as investors shifted into bank stocks.

Shares in Anglo-South African financial services group Old Mutual gained 2.7 per cent after the company said it would sell its Buxton UK wealth business to TA Associates for US$800 million as part of a planned break-up.

Intrum Justitia shares fell 7.5 per cent after the debt collection firm said its CFO would leave the company.

Budget airline Ryanair gained 2.3 per cent, bouncing back after six straight sessions of losses caused by investors'concerns over the firm's decision to recognise unions.

Telecoms stocks outperformed, boosted by a note from Morgan Stanley arguing the industry could fare better in 2018 thanks to successful cost-cutting, stronger mobile revenue growth and lower cash tax rates.

Telcos have been among the worst performing sectors this year, down 2.5 per cent from January.

Overall euro zone equities were drawing to the close of a stellar year of gains, shrugging off a strengthening euro to deliver substantial returns.

"If you look at performance in euros, European equities had a very strong year even compared to US companies," said Valentin Bissat, equity strategist at Mirabaud Asset Management, adding the difference in local currency performance was mainly down to the euro's strength.

"More importantly, it came from earnings growth rather than valuation expansion," he added.

REUTERS