European shares edged lower on Tuesday, hit by a rise in crude oil prices as hopes of a durable U.S.-Iran peace deal faded, with surging euro zone bond yields adding to the pressure amid worries about persistent inflation.
The pan-European STOXX 600 (.STOXX) was down 0.5% at 652.94 points, as of 0849 GMT, on track for a fifth consecutive session of losses.
Energy shares (.SXEP) were up 0.3% as Brent crude climbed to around $90 a barrel.
Higher oil prices are closely watched in Europe, which remains heavily reliant on energy imports, as escalating Middle East tensions threaten to disrupt supply and drive up fuel costs, feeding inflation that raises operating expenses for businesses and weighs on consumer spending.
"The bigger concern for Europe is natural gas. Markets are focused on whether Europe can replenish its gas storage at reasonable prices ahead of winter, with current inventory levels and costs remaining a key source of uncertainty," said Gordon Kerr, European macro strategist at KBRA.
Natural gas prices rose 0.8% to $2.7 amid concerns that renewed U.S.-Iran tensions could disrupt energy supplies and keep fuel costs elevated.
Technology stocks (.SX8P) fell the most, down 1.8%, after optical connectivity products maker Huber+Suhner (HUBN.S) slid 5.7% following weaker-than-expected core profit and communications unit orders, putting the stock on track for its worst day since April 2025.
Euro zone long-dated bond yields hit multi-year highs on fears that a prolonged Middle East conflict could drive inflation via higher energy prices and increase defence-related borrowing. Germany's 10-year Bund yield reached its highest since 2011, while France's 10-year yield hit a 16-year peak.
"Markets are increasingly focused on the prospect of higher government spending across Europe. Combined with inflation concerns, that is contributing to upward pressure on long-dated bond yields," Kerr said.
Among individual stocks, H&M (HMb.ST) topped the STOXX 600, up 3.5% after an executive disclosed the purchase of 8,000 shares in the company.
