European share indexes closed about half a per cent lower yesterday, pressured by rising US bond yields which hit high-yielding utility stocks such as Germany's RWE and E.ON.
Britain's Scottish Power and United Utilities lost one per cent each.
Shares in Credit Agricole lost 4.3 per cent after the French bank reported fourth-quarter earnings that missed forecasts due to higher costs than expected and charges tied to its merger with Credit Lyonnais.
By 1645 GMT, the FTSEurofirst pan-European 300 index was 0.58 per cent lower at a provisional close of 1,094.2 points, after rising 0.3 per cent in the session.
"Today was a big move (in utilities) but it is continuing a trend that has been running for a couple of weeks," said Mark Tinker, head of strategy at brokers Execution.
"The only reason (equities following bonds) for that to make sense is if there is any contagion from the bond market. Other than that there is no justification for that."
US Treasury debt prices dived, taking benchmark yields to seven-month highs, as technical selling swept the market just hours before the US government auctions $15 billion in new debt.
US blue chips also fell but later trimmed gains after government data showed US oil inventories jumped, easing worries about high energy prices.
On the upside, Europe's biggest hotel group, Accor, gained 3.5 per cent after beating last year's profit forecasts and announcing a €1 billion investment from US real estate fund Colony Capital. Utilities usually favoured by investors in times of tightening monetary policy due to their relatively stable earnings and high payouts, bore the brunt of the rise in US treasury bond yields, and the sector index fell one per cent.
German utility groups RWE lost 2.3 per cent. E.ON, which reports last year's results today, fell 1.2 per cent.
The benchmark US 10-year note slid 16/32 in price, lifting yields to 4.46 per cent from 4.395 per cent late on Tuesday. The sudden spike cracked previous peaks at 4.42 per cent and took yields to their highest reading since August.
Around Europe, London's FTSE 100 closed 0.3 per cent weaker while Paris's CAC-40 and Frankfurt's DAX each closed nearly 0.5 per cent lower. In Zurich, the SMI eased 0.25 per cent.
"We are maintaining a defensive stance, with an oil and bank tilt, because we feel the consumer-driven banks are protected in this environment," said Karen Olney, a European equity strategist at Dresdner Kleinwort Wasserstein.
"We would be very cautious on industrial cyclicals (because) currencies are going against them and oil prices are high."
Crude prices held just below record highs near $55 a barrel as fund buying dominated the market even though US data showed crude oil stocks had risen to their highest level for eight months.
Sporting goods firm Adidas-Salomon rose 6.8 per cent, buoyed by a 30 per cent rise in its annual dividend and plans to buy back up to 10 per cent of its own shares.