After rising 0.7% just after the midday mark, the Stoxx 600 dipped into the red by the close, ending 0.2% lower at 637.72

European stocks gave up earlier gains on Tuesday after a weak US stock market start as another sell-off in government debt tempered investors’ appetite for equities.

After rising 0.7% just after the midday mark, the Stoxx 600 dipped into the red by the close, ending 0.2% lower at 637.72. Gains in Frankfurt and Milan were offset by declines in Paris, London, Madrid and Zurich.

Oil prices dropped slightly on Tuesday, with Brent futures for December delivery (the November contract expires on Tuesday) down 1.4% at $96.47 a barrel on the back of a much-needed rebound in supplies from Saudi Arabia.

However, ongoing diplomatic efforts between Iran and US continue to keep investors cautious. Officials from the two nations reportedly held separate talks with mediators on Monday despite US president’s rejection of a truce plan that would reopen the Strait of Hormuz.

The late drop in European stocks was largely attributed to another rise in US Treasury yields, with the 10-year at a 2007 high of 5.265% and the 30-year at a 2004 high.

This sharp increase in borrowing costs has weighed on equity prices, as investors continue to factor in the increasing likelihood of at least one more 25-basis point Fed rate hike before year-end, said David Morrison, senior market analyst at Trade Nation.

While a pullback in oil prices could see yields slip, there’s also the problem that the government has competition when it comes to selling its debt from the giant hyperscalers which are desperate to raise huge sums for AI infrastructure spending, he said.

In Europe, economic sentiment deteriorated in September, marking the first decline in five months, according to figures from the European Commission on Tuesday. The Commission’s Economic Sentiment Indicator dropped by 0.5 points to 97.9, moving further below its long-term average of 100. The indicator had been trending higher since May.