(Bloomberg) -- European stocks fluctuated as hotter-than-expected US inflation fueled concerns interest rates will stay higher for longer.

The Stoxx 600 Index eeked out a small gain of 0.1% by the close in London after a volatile session, with bond proxy sectors such as utilities leading declines while banks traded higher. The regional benchmark switched from gains to losses earlier, climbing as much as 0.8%, before falling 0.6% after the release of the US consumer price report.

A measure of underlying inflation topped forecasts in March for a third month, disappointing bets on imminent rate cuts. US 10-year Treasury yields spiked to a five-month high of 4.5%. Wall Street stocks sank following the report.

“Markets have been wrestling with the likelihood of the Federal Reserve delivering on three rate cuts this year, but on these numbers, two rate cuts may now be the more likely outcome,” said Charles Hepworth, investment director at GAM Investments. “The Fed has been the only one in the room tempering expectations and now these are hitting the wall of reality. Markets will likely follow.”

A rally in European stocks has stalled this month as investors recalibrate the outlook for interest rate-cuts. Focus on Thursday will be on the European Central Bank’s policy decision.

The region’s international earners can draw advantages from a stronger dollar “until we see clearer signs of rate cuts,” Liberum strategist Susana Cruz said.

Among single stocks, Swiss chocolate maker Barry Callebaut AG jumped after its revenue beat analyst estimates in the fiscal first half as volumes increased. Tesco Plc gained after it said retail profit will likely rise this year as easing cost pressures allow the supermarket chain to cut prices and attract budget-conscious shoppers.

SECTORS IN FOCUS:

  • Miners as copper extended its rally toward $9,500 a ton amid supply risks and a brightening outlook for demand. Iron ore steadied after a 10% surge fueled by bets that the steelmaking material’s slump below $100 a ton was overdone.
  • Semiconductor stocks after Taiwan Semiconductor Manufacturing Co.’s quarterly revenue grew at its fastest pace in more than a year, shoring up expectations that a global boom in AI development is fueling demand for high-end chips and servers.

For more on equity markets:

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  • M&A Watch Europe: FNAC Darty, Merlin, Hospital Operator IPO
  • CORRECT: London’s Big Oil Eyes New York Listings: ECM Watch
  • US Stock Futures Little Changed; Vimeo Gains
  • BP’s Trading Boost: The London Rush

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--With assistance from Michael Msika.

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