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PARIS: European shares fell on Tuesday after a hotter-than-expected U.S inflation reading led traders to trim bets of early interest rate cuts from the Federal Reserve and as technology shares dropped from an over two-decade high.

The pan-European STOXX 600 index ended down 1.0% after data showed US consumer prices increased more than expected in January amid rising shelter and healthcare costs.

Government bond yields rose across the globe, with Germany’s 10-year yield hitting a two-month high as traders pushed back bets of the first rate cut from the Fed to June from May.

“The CPI is running hotter (and) this makes the likelihood of rate cuts before the summer very unlikely,” said Giles Coghlan, chief market analyst at brokerage GCFX. “Unless we see a big dip lower in inflation or a big slowdown in the jobs market, I can’t see the Fed cutting before June.

The Euro STOXX volatility index touched a near one-month high earlier in the session.

Europe’s technology sector was at the forefront of the selling pressure, falling 2.7% from a 23-year high hit in the prior session.

Shares of chip firms ASML, BE Semiconductor and Infineon shed between 3% and 5% after peer Siltronic said it expects its EBIT to decline “significantly” in 2024.

Rate-sensitive real estate shares dropped to their lowest since Dec. 1, falling 2.5%.

European shares were at a near two-year high in the previous session, propelled by a solid rally on Wall Street driven by optimism around artificial intelligence as well as dovish comments by European Central Bank (ECB) policymakers.

Traders are currently pricing in a roughly 60% chance of an ECB rate cut as soon as April.

Among individual movers, shares of Michelin advanced 6.9% to the top of STOXX 600 after the French tyre maker posted a record annual profit and announced a new share buyback plan.

TUI, Europe’s largest travel company, ended flat following a jump earlier in the day on strong earnings.

Shares in German arms maker Rheinmetall gained 4.6% with a trader and analyst pointing to calls for higher defence spending.

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