LONDON: European shares fell sharply on Tuesday as a sell-off in global bond markets led investors to trim their exposure to risk.
The pan-European FTSEurofirst 300 index closed down 1.3 percent at 1,574.61 points and Germany's DAX ended the day down 1.7 percent.
"Bond-like equities, or high-yielding bond proxies such as consumer staples, are already looking quite expensive, and this sort of bond-market reaction is not helpful for them," said Victoria Leggett, portfolio manager at Union Bancaire Privee.
"Markets have had a strong run since the beginning of the year and investors have been preparing for a correction."
German Bund yields have been rising from extremely low levels, churning up volatility, in a global sell-off that has been puzzling analysts since the end of April.
"We think this is temporary volatility that should work itself out, but it is nonetheless a sign of caution. We have to keep an eye on the bond market," said Ingo Speich, portfolio manager at Union Investment, who said he would use a recent build-up in cash to make more investments.
Greece outperformed the wider European stock market, its ATG index closing up 1.8 percent, as Athens calmed fears of a default on Monday by making a 750 million euro ($840 million) payment to the International Monetary Fund a day early, although Finance Minister Yanis Varoufakis said the liquidity situation was "terribly urgent".
The market also came under pressure when easyJet shares fell 9.8 percent after the British low cost airline warned it would take a hit from air traffic strikes in April.
Shares in supermarket groups Ahold and Delhaize were up after they announced merger talks to create a top 20 global retailer with a major U.S. presence. Ahold shares closed up at 1.4 percent and Delhaize were up 1.3 percent.
Shares in Telecom Italia rose to a five-day high. Traders cited a report about a possible merger between Wind and 3 Italia, the Italian mobile phone units of VimpelCom and Hutchison Whampoa respectively, which could reduce the competitive pressure on Telecom Italia.
Among other sharp movers, French telecom group Numericable-SFR gained 0.8 percent at the close, after raising its medium-term profitability target and promising more cost savings than originally planned from its merger.
Numericable bought mobile operator SFR from Vivendi last November. Aggressive cost-cutting by SFR's new owner and its parent company, Altice, paid off in higher operating profit. Altice shares rose 9 percent at market close.
German industrial group ThyssenKrupp rose 2.8 percent after predicting efficiency gains of more than 2.5 billion euros ($2.8 billion) by September 2015.
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