UKX FTSE 100 Index

By Carla Mozee, MarketWatch

European stocks fall to session lows after report that China is reviewing U.S. bond buying

European stocks fell Wednesday, following a five-day rally that pushed the market to its highest level in more than two years. Bucking the trend, shares of banks tracked a rise in U.S. bond yields.

What are markets doing: The Stoxx Europe 600 index was down 0.5% at 398.25, with only the financial sector rising, fronted by bank stocks. The health care and telecom sectors lost the most. On Tuesday, the benchmark rose 0.4% (http://www.marketwatch.com/story/european-stocks-rise-for-5th-session-in-a-row-stay-at-highest-since-2015-2018-01-09) to end at 400.11, a fresh 2 1/2 year high and the first close above 400 since mid-2015.

Germany's DAX 30 index fell 0.7% to 13,287.31, after dropping as much as 1%. France's CAC 40 turned down by 0.3% to 5,505.83 after closing on Tuesday at a 10-year high.

The U.K.'s FTSE 100 index little changed at 7,730.27 after Tuesday's close at an all-time record high.

The euro traded at $1.1997, up from $1.1937 late Tuesday in New York.

The yield for the 10-year German government bond, or bund, was up less than 1 basis point to 0.46%, according to Tradeweb. Yields rise when prices fall.

What's driving the market: Investors took a break from bidding up European stocks after doing so over the past five sessions, the market's longest winning streak since early November. Losses for European benchmarks started to accelerate alongside a drop in U.S. stock futures following a Bloomberg report that China is considering halting or slowing purchases of U.S. Treasuries. (https://www.bloomberg.com/news/articles/2018-01-10/china-officials-are-said-to-view-treasuries-as-less-attractive)

"If the reports turn out to be true and China no longer sees Treasuries as an attractive option, the repercussions could be significant as the country is one of the biggest holders of U.S. debt. A significant change in policy could put considerable upside pressure on U.S. yields, the result of which would be an effective tightening for the U.S.," said Craig Erlam, senior market analyst at Oanda, in a note.

Germany's DAX 30 index fell by more than 1% during Wednesday's session. Volkswagen AG (VOW.XE) shares were down 1.5% after they've charged up more than 7% so far this year. Automotive supplier Continental AG (CON.XE) fell 2.9% in the wake of the company's evaluation of a possible strategic revamp (http://www.marketwatch.com/story/continental-weighs-changes-to-be-more-flexible-2018-01-09). Its shares have jumped more than 8% in 2018.

But bank stocks outperformed other pockets of the broader market on Wednesday. The move keyed off gains for bank shares on Wall Street on Tuesday as the U.S. 10-year yield rose above 2.5% for the first time since March 2017 (http://www.marketwatch.com/story/treasury-yields-rise-as-bank-of-japan-cuts-bond-buying-2018-01-09), gaining after the Bank of Japan reduced its bond purchases amid speculation the central bank would signal an end to years of ultra-accommodative monetary policy.

Higher long-term yields can help lift profit at banks. The Stoxx Europe 600 Bank Index leapt 1.3%, headed toward its highest since November 2015, according to FactSet data.

See:European stocks have been a "trendy" trade, but they now could finally break out (http://www.marketwatch.com/story/these-stocks-have-been-a-trendy-trade-but-they-now-could-finally-break-out-2018-01-08)

Also check out:These 5 charts are all 'flashing green' for more U.K. stock records (http://www.marketwatch.com/story/these-5-charts-are-all-flashing-green-for-more-uk-stock-records-2018-01-08)

Stock movers: Bank stocks were among top gainers on the Stoxx 600, with Commerzbank AG (DBK.XE) up by 3.5%, U.K.'s Metro Bank PLC (MTRO.LN) rising 3.9% and Spain's Banco Sabadell SA (SAB.MC) tacking on 2.1%. Deutsche Bank AG (DBK.XE) gained 1.7%.

Tele2 AB shares (TEL2-B.SK) dropped 5.2% after the Swedish telecom operator said it's buying pay-television company Com Hem Holding AB (http://www.marketwatch.com/story/tele2-to-buy-swedish-pay-tv-operator-com-hem-2018-01-10)(COMH.SK) . Com Hem shares climbed 6.3%.

Taylor Wimpey PLC (TW.LN) said its 2017 results should meet analyst expectations as home completions increased, but investors sent shares down 3.6%. The U.K. home builder said it plans on returning about GBP500 million ($677 million) in dividends (http://www.marketwatch.com/story/taylor-wimpey-to-return-500-mln-to-shareholders-2018-01-10) to shareholders in 2018.

Economic data: French industrial production fell 0.5% in November (http://www.marketwatch.com/story/french-industrial-production-falls-as-seen-2018-01-10), as a slowdown in manufacturing output outweighed rising energy production, national statistics agency Insee.

U.K. manufacturing output rose 0.4% in November (http://www.marketwatch.com/story/uk-manufacturing-grows-for-7th-month-in-a-row-2018-01-10), the Office for National Statistics said, a sign that British producers are benefiting from the pound's weakness and strong global demand. Separately, the U.K. goods trade deficit with the rest of the world widened slightly in November to GBP12.2 billion from the revised October figure of GBP11.7 billion.

(END) Dow Jones Newswires

January 10, 2018 06:53 ET (11:53 GMT)

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