European shares fell on Thursday, hurt by rising bets of more aggressive rate hikes by the Federal Reserve after a sharp spike in U.S. inflation, while Italy's main index tumbled 1% as the country's government faces collapse.
The pan-European STOXX 600 index slipped 0.3% by 0711 GMT. It had fallen 1% on Wednesday when hotter-than-expected U.S. inflation data spurred bets that the Fed could go for a more than 75-basis-point rate hike that the market had priced in for this month end.
This fed into investors' recession fears and raised pressure on the European Central Bank, as the euro dipped below parity to the dollar on Wednesday.
Italy's MIB index dropped after the 5-Star Movement said it will not take part in a parliamentary confidence vote later in the day, in a move that looked likely to trigger the collapse of Prime Minister Mario Draghi's government.
Italian bond yields rose sharply, widening spreads with German counterparts.
On the other hand, Swedish bank SEB, luxury retailer Hugo Boss and Norwegian oil services firm Aker Solutions were among the top gainers on the STOXX 600 after positive earnings updates.
Swedish telecoms equipment firm Ericsson slumped 7.7%, after missing core profit estimates.
(Reporting by Susan Mathew in Bengaluru; Editing by Rashmi Aich)