- The pan-European Stoxx 600 index sank 1.3%, with tech shares among the worst performers.
- Future earnings of tech stocks are seen to be less attractive to investors when interest rates are higher.
- Banks, which would benefit from a normalization of interest rates, were the standout gainers in Europe by sector.
LONDON — European stocks fell sharply on Thursday as fears over more aggressive tapering from the U.S. Federal Reserve set off a global market sell-off.
The pan-European Stoxx 600 index closed down 1.3% provisionally, with almost all sectors and major bourses in negative territory.
Minutes from the U.S. Federal Reserve's December meeting showed officials are ready to aggressively dial back the central bank's pandemic-era easy monetary policy.
The Fed's plan to reduce the number of Treasurys and mortgage-backed securities it holds comes as it is already tapering its bond purchases and is set to hike interest rates after the taper concludes.
Tech stocks were among the worst performers in Europe on Thursday, slumping 2.4% amid growing concern about forthcoming U.S. rate rises.
The future earnings of tech stocks are seen to be less attractive to investors when interest rates are higher as increased debt costs can hinder their growth. German software company Nemetschek was one of the worst performers on the index, down 7%.
Banks, which would benefit from a normalization of interest rates, were the standout gainers in Europe by sector, climbing 0.9%. Caixabank and Standard Chartered were among the best performers, their shares up 3.9% and 3.7%, respectively.
European markets followed their Asia-Pacific counterparts lower Thursday, following losses in the U.S. during Wednesday's trading session.
Stateside, the benchmark 10-year Treasury yield rose as high as 1.75% on Thursday, with investors assessing the Fed's faster-than-expected policy tightening.
U.S. stocks were mixed after a sharp drop in the previous session. The blue-chip Dow Jones Industrial Average lost more than 100 points, or 0.3%, extending losses while the tech-heavy Nasdaq index was flat, struggling to recover from its biggest one-day loss since February.
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- CNBC's Ryan Browne contributed to this report