European shares weighed down by defensives; banks get yield boost

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MILAN, Oct 4 (Reuters) - European shares fell in early trade on Thursday, led lower by defensive stocks, while banks tracked gains by their U.S. peers after strong data lifted Treasury yields to their highest since mid-2011.

The pan-European STOXX 600 benchmark index was down 0.5 percent by 0726 GMT. Germany's DAX also declined 0.5 percent and the UK's FTSE fell 0.6 percent.

Defensive companies including consumer and healthcare stocks were the main drag on the STOXX. Shares in British American Tobacco, Nestle and Novartis were down between 0.6 and 3.7 percent.

Their losses were partly offset by gains among banks , which tend to benefit from rising rates and bond yields. German lenders Commerzbank and Deutsche Bank were up 1.9 and 1.5 percent respectively, as German 10-year bond yields hit a 4-1/2 month high.

Some Italian banks, however, remained under pressure as investors monitored developments in Rome, where the government is trying to finalized budget details after clashing with the EU over its deficit targets.

Danske Bank fell 2.3 percent after it discontinued its share buyback program and said it was in talks with U.S. authorities about non-resident accounts at its Estonian branch, which are at the center of a $235 billion money laundering scandal. (Reporting by Danilo Masoni; editing by John Stonestreet)