Europe close: Shares lower as US-Iran stalemate, oil, bonds weigh on sentiment

(Sharecast News) - European shares closed lower on Tuesday amid rising bond yields and higher oil prices as the supposed US-Iran 60-day "ceasefire" came to an end with zero progress made towards a peace deal and the Strait of Hormuz effectively closed.

The pan-regional Stoxx 600 finished 0.64% lower to 652.22 with most major bourses lower. Germany's DAX was down 0.91%, France's CAC 40 fell 0.82%, Italy's MIB tumbled by 1.05% and Spain's IBEX slid by 0.26%, while the UK's FTSE 100 eked out a 0.05% rise.

Brent crude jumped to 1.11% to almost $92 a barrel after Iran on Monday said it would shift `to a "fully offensive" military stance, according to a senior Iranian official. The US ruled out an extension of the temporary ceasefire `pact.

Tensions were further heightened when a cargo vessel was struck by a projectile while transiting the strait, the UK Maritime Trade Operations agency said on Tuesday.

Meanwhile, the US 30-year treasury bond yield hit its highest level since June 2007, reaching an intraday high of 5.321%.

"This unfortunate development unwinds some of the optimism which had begun to permeate the market on interest rates, where a batch of soft economic data over the last couple of weeks had heightened hopes that the Federal Reserve would have little reason to hike for the time being," said Interactive Investor head of markets Richard Hunter.

"Investors may be getting close to headline fatigue on the Middle East fluctuations, but the rise in bond yields is already having an effect, with the average long-term US mortgage rate already having risen to its highest level in a year. The release of the latest Fed minutes tomorrow are unlikely to shed much fresh light on the central bank's thinking and indeed its apparent reticence to maintain forward guidance is leaving the door open to investor speculation and uncertainty."

On the economics front, German investor sentiment improved more than expected in August, according to a survey released on Tuesday by the ZEW Center for European Economic Research in Mannheim.

The ZEW economic expectations index ticked up to 34.2 from 26.3 in July, coming in above expectations for a reading of 30.0.

Meanwhile, the current conditions index improved to -61.1 in August from -77.6 in July.

ZEW President Achim Wambach said: "The positive trend in expectations further consolidates in August, likely due to the good quarterly results and the recent high level in exports.

"The German economy continues to benefit from the federal government's infrastructure programmes although the record low water levels on the Rhine River present an additional acute risk affecting economic activity."

In equity news, Royal Unibrew slumped after a target price cut by Nordea.

Tech stocks were out of favour, with Infineon, STMicro, Nokia, ASM International and BE Semiconductor all down between 6% and 8% as investors dumped highvaluation tech amid rising bond yields, firmer oil prices and renewed geopolitical tension

The sector tracked sharp losses in Asian chipmakers earlier in the session, while the jump in longdated US Treasury yields added pressure to ratesensitive names across Europe.

Reporting by Frank Prenesti for Sharecast.com