European stocks fell on Wednesday, mirroring losses in U.S. and Asian markets as government bond yields hovered near five-year highs and stoked worries of higher borrowing costs.

Financials including ING and Allianz were among the biggest negative weights in the FTSEurofirst 300 index. Among gainers, British bank Alliance & Leicester added 1.5 percent after it issued an upbeat trading update.

Shares in Heidelberger Druck fell 2 percent after the printing machine maker disappointed investors with a lower-than-expected dividend proposal and a moderate growth outlook, traders said.

By 0825 GMT, the pan-European FTSEurofirst 300 index was down 0.4 percent at 1,568.3, surrendering Tuesday's 0.5 percent rise.

The index is about 4 percent below a six-year high of 1,628.5 hit last week, after a sell-off in global equities. The European index is still up nearly 6 percent so far this year.

Everyone knew that bond yields had to go up but it was the question of trying to pick that timing, said Andrew Lynch, a European fund manager at Schroders.

It's important to think why they are going up. Economic growth remains strong and companies are starting to be able to put up end-market consumer prices.

Ten-year euro zone government yields hit 4.65 percent, the highest in almost five years, as investors continued to worry that strong global growth and inflation pressures will force central banks to raise interest rates.

U.S. 10-year yields hit new five-year highs.

On Tuesday, the Dow Jones industrial average lost nearly 1 percent to end at 13,295.0 and the Standard & Poor's 500 Index fell 1.1 percent to 1,493.0.


With markets on tenterhooks about monetary policy, investors will also look for U.S. retail sales data and the Federal Reserve Beige Book summary of regional economic conditions.

London's FTSE 100 index was down 0.3 percent, Paris's CAC-40 dipped 0.5 percent and Frankfurt's DAX lost 0.7 percent.

The rise in borrowing costs is likely to slow the rash of mergers and acquisitions which helped the FTSEurofirst 300 index rally 16 percent last year, fund managers said.

Its not going to bring it to a halt because earnings yields and cash flow yields are still for a lot of companies higher than current levels of bond yields, said Schroders Lynch.