European shares fell in early trade on Thursday, led by defensive stocks, while banks tracked gains by their US peers after strong data lifted Treasury yields to their highest since mid-2011.

The pan-European STOXX 600 benchmark index was down 0.5 per cent by 0726 GMT. Germany's DAX also declined 0.5 per cent and the UK's FTSE fell 0.6 per cent.

Defensive companies, including consumer and healthcare stocks, were the main drag on the STOXX. Shares in British American Tobacco, Nestle and Novartis were down between 0.6 and 3.7 per cent.

Their losses were partly offset by gains among banks, which tend to benefit from rising rates and bond yields. German lenders Commerzbank and Deutsche Bank were up 1.9 and 1.5 per cent, respectively, as German 10-year bond yields hit a 4-1/2 month high.

Some Italian banks, however, remained under pressure as investors monitored the developments in Rome, where the government is trying to finalised budget details after clashing with the EU over its deficit targets.

Danske Bank fell 2.3 per cent after it discontinued its share buyback programme and said it was in talks with US authorities about non-resident accounts at its Estonian branch, which are at the centre of a $235 billion money laundering scandal.

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