The pan-European STOXX 600 <.STOXX> closed 0.5 percent lower, its fourth straight day of losses. Germany's DAX <.GDAXI> led national indexes lower, down 1.4 percent.

"It’s hard to say whether this is just a technical-based move, but it does look like nervousness in equity markets is down to rising bond yields again," ETX Capital analyst Neil Wilson said in a note.

U.S. stocks opened lower, weighed down by a drop in Microsoft and by the Federal Reserve's forecast for faster inflation, which led it to predict "further gradual" interest rate increases .

Most sectors in Europe were trading in negative territory. Pharma <.SXDP> and telecoms <.SXKP> were among the leading losers, both down 1.5 percent or lower after disappointing updates from Novo Nordisk (>> Novo Nordisk A/S) and Vodafone (>> Vodafone Group).

AFS analyst Arne Petimezas said declines by stocks were driven by expectations of tighter central bank policy and by a sell-off on the bond market.

Euro zone government bond yields rose across the board on Thursday. Germany's 10-year government bond yield, the benchmark for the euro zone, hit a two-year high.

After a strong 2017, European shares rose last month, as cyclical stocks like banks and autos gained on expectations of strong economic and earnings growth.

Price moves on Thursday were mostly driven by earnings updates. Royal Dutch Shell fell on disappointing fourth-quarter cashflow and insulin maker Novo declined after its chairman quit and it reported operating profit below expectations .

Danish telecoms operator TDC (>> TDC A/S) slumped more than 8 percent after an announcement that it would buy the broadcasting and entertainment business of Sweden's Modern Times Group (>> Modern Times Group) in a $2.48 billion deal. Modern Times gained 7.4 percent.

Several other big companies, among them Nokia (>> Nokia Oyj) and Dassault Systemes (>> Dassault Systèmes), were up after their profit updates.

NEX Group (>> NEX Group PLC) gained 7.8 percent after revenues rose. The financial technology firm benefited from markets it said were "noticeably" more active this year.

Bic (>> Bic) fell 9.4 percent as Natixis cut its price target on the stock following its earnings update.

Overall, fourth-quarter earnings for the STOXX 600 are expected to increase by 11.9 percent year on year, the latest Thomson Reuters data showed.

(Reporting by Danilo Masoni and Kit Rees, editing by Larry King)

By Danilo Masoni