European shares declined on Wednesday as worries that global interest rates will stay elevated for longer pushed bond yields higher, with fresh evidence of persistently high inflation in the region's biggest economy only exacerbating such concerns.

The pan-European STOXX 600 index closed 1.1% lower, touching a three-week low, clocking its biggest single-day fall since April 16.

There were steep declines in all major bourses in the region, with France's CAC 40 index and Italy's FTSE MIB leading losses with a roughly 1.5% drop each.

The yield on the 10-year bund, considered Europe's benchmark, rose to an over six-month high and was last at 2.685% after

German inflation increased slightly more than forecast to 2.8% in May.

"What you've seen over the last few weeks is that this 'higher for longer' narrative in terms of interest rates has come back to the fore," said Dan Boardman-Weston, chief executive and chief investment officer at BRI Wealth Management.

Concerns about major central banks keeping interest rates elevated for longer gripped global markets, as the yield on the U.S. 10-year Treasury note touched a four-week peak, with stocks on Wall Street also sliding.

However, money market participants see a close to 90% chance of the European Central Bank (ECB) kick-starting its policy-easing cycle next week, as per LSEG's rate probability tool.

"Markets have had a relatively good run up over the last month or two, so you're (also) seeing a little bit of profit taking," said BRI Wealth Management's Boardman-Weston.

The STOXX 600 index has fallen over 2% from record-high levels seen earlier in May as a rally fuelled by hopes of global monetary policy easing in the near-term appeared to fizzle out.

All major STOXX 600 sectors clocked losses, with basic resources and utilities amongst the worst hit with an around 2% decline each.

Looking ahead, the U.S. Personal Consumption Expenditure (PCE) price index, due on Friday, along with a euro zone inflation reading will be on investors' radar.

Among individual stocks, Anglo American shares closed 3.1% lower after BHP Group said it did not intend to make a formal offer for the company, walking away from its $49 billion takeover deal, after Anglo American refused to extend the bid deadline.

Italian bank Monte dei Paschi di Siena slumped 5.4% after a judge asked Milan prosecutors to investigate alleged fraud in relation to the bank's rescue in 2017, according to a document seen by Reuters.

On the bright side, Royal Mail's parent company International Distributions Services jumped 4.3% as it agreed to a 3.57 billion pound ($4.55 billion) formal takeover offer by Czech billionaire Daniel Kretinsky.

(Reporting by Shubham Batra and Shashwat Chauhan in Bengaluru; Editing by Varun H K, Mrigank Dhaniwala and Mark Heinrich)