European Stocks Slump on Rising Bond Yields and Energy Inflation Fears

European stocks closed lower on Wednesday due to rising bond yields and concerns over energy-driven inflation. The pan-European STOXX 600 index fell 0.2% to 645.94 points, with retailers leading a majority of sectors down by 2.3%. Brent crude prices rose above $95 a barrel, adding to inflation worries as the US and Iran traded strikes overnight in the Middle East conflict.

The escalating tensions between the US and Iran have stoked fears over energy imports, which are crucial for European economies. Germany's DAX index shed 0.5%, while France's CAC 40 dropped 0.3% after hitting a near two-month low earlier in the session. French stocks took a beating last week on fiscal concerns ahead of next year's election.

However, banking stocks helped limit losses on the STOXX index, jumping 0.6%, with ING leading the gains in the sector. Morgan Stanley raised the stock to 'overweight' from 'equal-weight', citing positive mid-term earnings for European banks amid loan growth and resilient investments in manufacturing.