European stocks fell on Thursday as rising regional bond yields eroded the appeal of equities and fueled concerns that higher borrowing costs could weigh on the economy. The Stoxx Europe 600 index dropped 1.3%, closing at its lowest level since June. As the 30-year UK gilt yield climbed above 6% for the first time since 1998, the FTSE 100 declined 1.7%.

Among individual stocks, Pandora fell 3.3%. CEO Berta de Pablos-Barbier said demand in the US market is stabilizing at a low level as consumers struggle with inflation and high gasoline prices.

Rising yields pressured European bank stocks. The sector slid 3.7%, its biggest drop in seven months. Wolf von Rotberg, an equity strategist at Bank J Safra Sarasin, said: "Even financial stocks have started to underperform the broader market, because rising yields are widening high-yield credit spreads. If defaults among the most vulnerable borrowers increase, banks will be hit the hardest."

Higher yields typically reduce the appeal of stocks, as bonds become a more obvious alternative. With Middle East tensions keeping oil prices elevated and global bond yields rising, the Stoxx Europe 600 ended a five-month winning streak in September. Inflation data from France, Italy and Switzerland all came in above expectations, keeping inflation at the forefront of investors' attention. In the US, a raw materials price gauge rose to its highest level since May, intensifying market concerns about inflation. Investors are also watching French stocks after the French government announced a plan to significantly reduce its budget deficit.