(Reuters) – European stocks closed lower on Friday, ending three weeks in gains as investors posted gains in technology and commodity-linked stocks on concerns about rising inflation and interest rates due to a surge in bond yields.

The European benchmark index fell 1.6% and lost 2.4% for the week – its first weekly loss of the month – with technology stocks falling the most as they retreated further from their 20-year highs.

On the day, commodity stocks were the worst performing sectors in Europe, falling 4.2% from a nearly 10-year high in their worst session in five months.

“The stock markets in the US and Europe are currently quite expensive. With bond yields rising steadily, the bond market is proving to be more attractive than the riskier stock market,” said Roland Kaloyan, SocGen strategist.

“Investors are actually looking at the rate at which yields are falling, and the current rate is quite worrying for equity markets.”

US and Eurozone bond yields fell slightly on Friday, but stayed close to their highs this week as investors positioned themselves for higher inflation this year. The returns have also been set for large monthly profits. [GVD/EUR] [US/]

Sectors such as utilities, healthcare and other staples, usually viewed as proxy for sovereign debt due to their similar returns, lagged their European peers over the month as investors sought better returns on actual debt.

However, the STOXX 600 benchmark achieved in February rose thanks to a rotation in energy, banking and mining stocks on expectations of business activity following the introduction of vaccines.

Travel and Leisure were the strongest sectors in February as investors banked on an economic reopening boom. Thanks to higher bond yields, the banks also outperformed their competitors.

The better-than-expected fourth quarter result has also increased optimism about a faster recovery for companies this year. Of the 194 STOXX 600 companies that have reported quarterly results to date, 68% have exceeded analysts’ estimates, according to Refinitiv.

“With recovery hopes gaining ground with the economy reopening and the advent of vaccines, and earnings relatively positive, the short- to medium-term outlook for stocks appears positive as yield movements are still part of the equation,” said Keith Temperton, a stock trader at Forte Securities.

Among the individual moving companies, Belgian telecom operator Proximus was the worst performer on the STOXX 600 after posting lower core profit in 2021.

Reporting by Sagarika Jaisinghani in Bengaluru; Adaptation by Sriraj Kalluvila and Hugh Lawson