By Sagarika Jaisinghani and Ambar Warrick

(Reuters) – European shares retreated from near one-year highs on Wednesday as concerns over a possible spike in inflation and rising bond yields prompted a pullback in risk-driven assets, while Gucci owner Kering led losses after posting lower sales.

The pan-European STOXX 600 index closed 0.7% lower, while London’s mid-cap FTSE 250 lost 1.3% as data showed British inflation rose a little more than expected in January.

The possibility of a near-term spike in inflation, coupled with rising debt yields, has seen investors pricing in the likely tapering of monetary policy by major central banks, which in turn could weigh on risk-driven assets.

“We believe central banks for now have strong incentives to

lean against any rapid rise in nominal yields even as inflation rises…Yet rising debt levels may eventually pose risks to the

low-rate regime,” analysts at Blackrock Investment Institute said in a note to clients.

“Whether the low-rate regime lasts will depend not only on monetary policy but on the perceived safety of government bonds. Markets may eventually demand a higher premium for government bonds, even if central banks are more tolerant of higher inflation.”

Bets on a pickup in inflation pushed German bond yields to their highest in nearly a year, while U.S. yields recently scaled a similar milestone. [GVD/EUR] [US/]

Accommodative monetary policy and unprecedented stimulus measures had pushed Europe’s benchmark STOXX 600 more than 50% up from a coronavirus-driven crash in March.

But the index lagged its U.S. counterpart due to fears of the business impact from prolonged lockdowns, as well as a rocky vaccine rollout across the euro zone.

Investors were awaiting cues on the Federal Reserve’s stance from the minutes of its recent meeting, due later in the day.

In company news, shares of French conglomerate Kering bottomed out the STOXX 600 as it said sales from its Gucci brand fell 10.3% in the fourth quarter.

The broader European retail index lost 3.1% and lagged its peers for the day.

Lucky Strike maker British American Tobacco shed 3.9% even as it reported a stronger-than-expected annual profit, while Nivea maker Beiersdorf tumbled 5.9% after it said it did not expect a recovery in profitability in 2021 even though sales should rise.

Swedish cloud computing services provider Sinch AB topped the STOXX 600 after it agreed to buy U.S.-based communications company Inteliquent for $1.14 billion.

Oil and gas stocks were among the few gainers for the day, tracking strength in the crude market.

(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila and Mark Heinrich)