European shares slumped to a three-week low during their biggest daily loss in nearly two months as a resurgence in COVID-19 cases raised fears of tighter restrictions.

Oil prices jumped to a one-week high after a move on Tuesday by the United States and other consumer nations to release tens of thousands of barrels of oil from reserves fell short of some expectations.

In a historic rout, the Turkish lira plunged 15% and crashed to another record low during its second-worst day ever as investors panicked after President Tayyip Erdogan defended recent rate cuts and showed little concern for rising inflation.

Graphic: Lira volatility

Higher Treasury yields weighed on major U.S. technology stocks, pressuring the tech-heavy Nasdaq. Bank shares extended the previous day's gains, limiting losses elsewhere.

Unofficially, the Dow Jones Industrial Average rose 0.54% to end at 35,813.28 points, while the S&P 500 .SPX gained 0.17% to 4,690.69. The Nasdaq Composite dropped 0.5% to 15,775.14.

"It's possible that interest rates will be moved higher earlier than expected," said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.

"But that result, while positive for bank stocks, is not positive for the rest of the stock market, particularly technology, which trades on very high price/earnings multiples."

The pan-European STOXX 600 shed 1.3%, with only the oil & gas and basic resources sectors trading higher.

U.S. President Joe Biden on Monday tapped Powell to continue as Fed chair, and Lael Brainard, the other top candidate for the job, as vice chair. The news initially buoyed Wall Street stocks, before the market pulled back in the afternoon with the S&P 500 and Nasdaq Composite closing well off all-time highs.

The sense that a second term under Powell could add to policymakers' desire to curb rising inflation also sent investors buying dollars.

The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.07%. The euro rose 0.12%, recovering slightly from a July 2020 low on better-than-expected business growth data.

U.S. Treasury yields were higher in choppy trading as investors prepared for the Fed to become more aggressive in fighting inflation, though two-year note yields dipped after hitting their highest level since early March 2020 on Monday.

"Interest rate hike expectations advanced with the market now pricing almost three hikes into 2022," Steen Jakobsen, chief investment officer at Saxo Bank, said.

Market expectations for a first European Central Bank rate rise were brought forward to December 2022.

COVID CONCERNS

New concerns about the spread of COVID-19 added to the gloomy mood. Riskier assets have been shaken in recent sessions by surging COVID-19 cases in Europe and renewed curbs, dousing investor hopes of a quick recovery in consumption and growth worldwide.

Germany's outgoing Chancellor Angela Merkel said the latest surge was the worst experienced by the country so far, while Austria went into a new lockdown on Monday.

The Euro STOXX 50 volatility index, Europe's main gauge of stock market anxiety, touched its highest level in almost seven weeks.

U.S. gold futures settled down 1.3% at $1,783 per ounce, also under pressure from the rate hike bets.

Elsewhere in commodities, oil prices rallied after the United States said it would release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain, to try to cool prices.

But analysts said the effect on prices was likely to be short-lived after years of declining investment in production and a strong global recovery from the COVID-19 pandemic.

Brent futures rose $2.61, or 3.3%, to settle at $82.31, while U.S. crude rose $1.75, or 2.3%, to settle at $78.50.

(Additional reporting by Ambar Warrick and Devik Jain; Editing by Dan Grebler, Alison Williams and Cynthia Osterman)

By Chris Prentice and Tommy Wilkes