European bank shares fall as bond yields surge, spreads widen

MILAN, Oct 7 (Reuters) - Shares in top European banks fell sharply on Wednesday as a renewed bond selloff and rising oil prices stoked concerns that inflation could reaccelerate, putting further pressure on rates and sovereign bond markets.

"The market is seeing pressure on rates, widening spreads and a generally weaker backdrop, also because oil has started to rise again," said Carlo Franchini, head of institutional clients at Banca Ifigest. "There is concern that if there were another disruption to exports, inventories may not be sufficient. The prospect of an inflation spike is doing the rest."

The STOXX Europe Banks index was last down 3.5%, trimming its year-to-date gain to about 13%. Shares in Societe Generale, Deutsche Bank, UniCredit and Intesa Sanpaolo were among the worst performers, all down more than 4%.

Traders said banks were being hit by fears of contagion from France to the wider euro area, while rising bond yields were generating losses on sovereign debt holdings and stoking concerns over housing-related exposure.

A global bonds selloff drove the US 30-year bond yield to a fresh 24-year high on Wednesday, while yields in heavily indebted euro zone countries rose faster than their safer German equivalents.

(Reporting by Danilo Masoni; editing by Dhara Ranasinghe)