EUROPE MARKETS: DAX Drops 0.8% As European Stock Rally Pauses

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01/10/2018 | 05:58 pm

By Carla Mozee and Sara Sjolin, 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 ended down 0.4% at 398.60, pulling back from a 2 1/2 -year high hit on Tuesday .

Germany's DAX 30 index fell 0.8% to close at 13,281.34, after dropping as much as 1% during the session. France's CAC 40 lost 0.4% to 5,504.68 after closing on Tuesday at a 10-year high.

The U.K.'s FTSE 100 index rose 0.2% to 7,748.51, nudging an all-time closing high as banks rallied.

The euro traded at $1.1964, up from $1.1937 late Tuesday in New York.

The yield for the 10-year German government bond, or bund, was up 1 basis point to 0.476%, 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. stocks following a Bloomberg report that China is considering halting or slowing purchases of U.S. Treasurys. (

"If the reports turn out to be true and China no longer sees Treasurys 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.

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 . The gain came 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 2.1%, scoring its highest close since December 2015, according to FactSet data.

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Stock movers: Among bank shares, Commerzbank AG (>> Deutsche Bank AG) rose 5.1%, U.K.'s Metro Bank PLC (>> Metro Bank PLC) added 4.3% and Spain's Banco Sabadell SA (>> Banco de Sabadell SA) tacked on 4%. Deutsche Bank AG (>> Deutsche Bank AG) gained 3%.

Tele2 AB shares (TEL2-B.SK) dropped 7.5% after the Swedish telecom operator said it's buying pay-television company Com Hem Holding AB (>> Com Hem Holding AB). Com Hem shares climbed 3.4%.

Taylor Wimpey PLC (>> Taylor Wimpey plc) said its 2017 results should meet analyst expectations as home completions increased, but investors sent shares down 4.2%. The U.K. home builder said it plans on returning about GBP500 million ($677 million) in dividends to shareholders in 2018.

Economic data: French industrial production fell 0.5% in November , as a slowdown in manufacturing output outweighed rising energy production, national statistics agency Insee.

Automotive supplier Continental AG (>> Continental AG) fell 2.9% in the wake of the company's evaluation of a possible strategic revamp . Its shares have jumped more than 8% in 2018.

U.K. manufacturing output rose 0.4% in November , 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.

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