By Sruthi Shankar
(Reuters) -European stocks fell on Thursday, as concerns over U.S. fiscal health kept Treasury yields elevated, while data showed euro zone business activity unexpectedly slipped back into contraction this month.
The pan-European STOXX 600 index was down 0.8% as of 0846 GMT, retreating further from a two-month high touched earlier this week.
Investors this week have been grappling with lack of progress on trade deals as well as U.S. President Donald Trump’s sweeping tax cut plans, which have raised concerns about ballooning U.S. debt and sent government bond yields surging.
In a clear sign of the impact of U.S. tariffs on the eurozone economy, HCOB’s preliminary composite eurozone Purchasing Managers’ Index dropped to 49.5 this month from 50.4 in April.
The survey showed that the bloc’s dominant services industry suffered a deeper downturn in demand, although manufacturing showed further signs of stabilisation.
“It’s worrisome that the main culprit is the service sector, which has long been the main engine of growth for the eurozone,” said Bert Colijn, chief economist at ING.
“The trade war is weighing on the eurozone economy, but likely mostly through the uncertainty channel rather than direct trade effects so far.”
U.S. stocks closed sharply lower on Wednesday, as the benchmark 10-year U.S. Treasury yield climbed to three-month highs on worries that U.S. government debt would swell by trillions of dollars if Congress passes President Donald Trump’s proposed tax-cut bill.
The House of Representatives voted on Thursday roughly along party lines to begin a debate that would lead to a vote on passage later in the morning.
While U.S. yields held steady, German long-term bond yields hit a two-month high on Thursday.
Among single stocks, Johnson Matthey soared 28% in its biggest percentage gain in years after the British chemicals firm agreed to sell its unit to Honeywell International for 1.8 billion pounds ($2.4 billion), including debt.
Tomb Raider owner Embracer fell 15.3% after it forecast slight revenue growth and broadly unchanged earnings for its fiscal 2025/26 and said that at least one of its nine AAA game releases slated for the following two financial years would be pushed back.
Freenet AG slid 14.8% after the German telecoms firm reported its first-quarter numbers.
(Reporting by Sruthi Shankar in Bengaluru; Editing by Sherry Jacob-Phillips and Tasim Zahid)
