STOXX 600 dips but set for weekly gains
BOJ policy tweak lifts European yields
Capgemini slides as Q2 growth slows

July 28 Reuters European shares retreated on Friday from multimonth highs scaled in the previous session as investors digested a mixed batch of earnings and as government bond yields climbed after the Bank of Japan tweaked its monetary policy.

The panEuropean STOXX 600 index slipped 0.3. The benchmark index closed at its highest levels in nearly 112 years on Thursday after the European Central Bank hiked interest rates as expected but raised the possibility of a pause in September.

Rattling investor nerves, the BoJ made its yield curve control policy more flexible and loosened its defence of a longterm interest rate cap, in moves seen as a prelude to an eventual shift away from the massive monetary stimulus.

European government bond yields rose, mirroring gains in Japanese yields and putting pressure on stocks.

Japanese investors will now have a large incentive to repatriate cash that is currently parked in USTs U.S. Treasuries and buy JGBs Japanese government bonds instead. That obviously goes for euro zone bonds too, said Stuart Cole, chief macro economist at Equiti.

This effectively means we could see upward pressure on yields globally and that is not great news for stocks. We also need to take into account that the past couple of days have been quite good for equity markets in general.

Despite Friday39;s weakness, the benchmark STOXX 600…