BERLIN, Oct. 1 (Xinhua) -- European stocks fell sharply on Thursday as government bond yields across major economies rose to multi-year highs, with investors increasingly concerned about elevated inflation, tighter monetary policy and mounting fiscal pressures.
The pan-European STOXX 600 index started the final quarter of the year by losing 1.3 percent, closing at its lowest level in more than three months.
Germany's benchmark DAX fell 1.03 percent to 24,939.35 points, while France's CAC 40 lost 1.62 percent and Britain's FTSE 100 dropped 1.68 percent to a three-month low.
The decline came as government bond markets remained volatile following weeks of heavy selling, which has pushed borrowing costs sharply higher across Europe and beyond.
France was among the hardest-hit bond markets. The yield on its benchmark 10-year government bond rose as high as 4.96 percent during intraday trading, up from 4.85 percent at Wednesday's close and its highest level since 2002.
German borrowing costs have also risen sharply in recent weeks, with the benchmark 10-year Bund yield climbing above 3.6 percent, around its highest level since 2009.
Pressure was also evident elsewhere in Europe. The average yield on Latvian government bonds included in a Bloomberg index reached 3.8 percent in September, its highest since 2023. Poland's benchmark WIG20 stock index fell 1.9 percent on Thursday, with several major banks losing around 4 to 5 percent.
The rise in European yields came amid a broader global bond selloff. The benchmark U.S. 10-year Treasury yield climbed to 5.34 percent on Thursday, its highest level since 2002, adding upward pressure on borrowing costs worldwide.
But Europe is also facing its own pressures, with renewed inflation concerns and deteriorating fiscal outlooks weighing on bond markets.
Higher energy prices linked to the conflict in the Middle East have fueled concerns that inflation could remain elevated for longer, forcing central banks to keep interest rates high or tighten monetary policy further.
German inflation accelerated to 3.3 percent in September from 2.9 percent in August, while inflation in France rose to 3 percent. The renewed price pressures added to expectations that the European Central Bank may need to maintain a restrictive policy stance.
Clemens Fuest, president of the Munich-based Ifo Institute, earlier told German public broadcaster ARD that rising government bond yields reflected growing concerns over higher public debt and the risk of stronger inflation.
Fiscal concerns have also become an increasingly important factor, particularly in France, where high debt levels and large budget deficits have unsettled investors.
The French government on Thursday presented its draft 2027 budget aimed at reducing the fiscal deficit. However, economists at ING Research said the measures would not be sufficient to stabilize the country's debt ratio, while political uncertainty would continue to weigh on French government bonds.
The yield spread between French and German 10-year government bonds has widened to as much as 133 basis points, the largest gap in 14 years, reflecting the higher returns investors are demanding to hold French debt amid concerns over the country's fiscal and political outlook.
Klavs Zutis, an economist at Latvia's central bank, said rising investment in artificial intelligence was adding another source of pressure by increasing competition for capital and forcing governments to offer higher returns to attract investors.
Johannes Mayr, chief economist at German asset manager Eyb & Wallwitz, made a similar point. He was quoted by German business daily Handelsblatt as saying that strong financing demand from governments and companies was creating a battle for capital that tended to push bond yields higher.
