• Global investors are watching market moves in the U.S. after the benchmark 10-year Treasury yield jumped to levels not seen since February 2020.
• Investors are also keeping an eye on cryptocurrencies Wednesday after bitcoin topped $51,000 for the first time as its surge to new record highs continued.

LONDON — European stocks closed lower on Wednesday as investors monitored rising bond yields stateside and the outlook for inflation.

The pan-European Stoxx 600 ended the session down 0.7%, with retail sinking 3.1% to lead losses as most sectors and major bourses slid into negative territory.

Global investors are watching market moves in the U.S. after the benchmark 10-year Treasury yield jumped Tuesday to levels not seen since February 2020. The 30-year rate also hit its highest level in a year.

The benchmark Treasury yield continued to rise Wednesday as U.S. retail sales easily topped expectations, adding to fears of potential inflation during the post-Covid economic recovery.

Some on Wall Street believe higher rates could prompt investors to rotate out of equities and into bonds, while also putting pressure on areas of the market, including tech, which have benefitted from the low-rate environment.

U.S. stocks were mostly lower Wednesday as investors weighed improving economic data with rising inflation expectations.

Investors are also keeping an eye on cryptocurrencies Wednesday after bitcoin topped $51,000 for the first time as its surge to new record highs continued.

On the data front, U.K. inflation growth surprised to the upside in January, rising by 0.7% in annual terms on the back of higher food prices and lower discounting of household goods.

Jai Malhi, global markets strategist at JPMorgan Asset Management, said while the annual rate of inflation remains low, this will likely change soon as a mixture of supply distortions due to Brexit and Covid-19 collide with a spike in demand to drive up prices for goods and services.

"Inflation is likely to start testing the Bank of England's 2% target later in the year when the UK consumer is able to unleash some of the £125 billion of additional savings they've accumulated during lockdowns, particularly if they run into supply bottlenecks," he said.

Earnings in focus

Earnings remain a key driver of individual share price action. Kering stock fell 7.2% to the bottom of the Stoxx 600 by early afternoon, after sales at its Gucci brand dropped by more than expected in the fourth quarter.

British American Tobacco shares fell 3.9% despite the world's second-largest tobacco company beating profit estimates before the bell.

"Cost cutting was a big contributor to the better-than-expected performance and investors may be concerned about the sustainability of future growth given Covid-19 has served a further reminder of the health risks of smoking," said Russ Mould, investment director at stockbroking platform AJ Bell.

Rio Tinto posted its best annual earnings performance since 2011 and issued an all-time high dividend payout on the back of rising commodity prices. The world's second-largest metals and mining company saw its shares fall slightly by the close.

At the top of the European blue chip index, SoftBank-backed Swedish cloud computing company Sinch surged 12% after announcing the $1.14 billion acquisition of U.S. communications firm Inteliquent.

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- CNBC.com staff contributed to this market report.