LONDON (Reuters) – The optimism with which markets started the year showed signs of waning on Wednesday, with European stock indexes mixed following a weaker Asian session that saw higher U.S. Treasury yields hurt technology stocks.

With investors expecting the Federal Reserve to begin hiking interest rates as early as March, U.S. Treasury yields jumped on Monday and Tuesday. But on Wednesday they pulled back slightly, with the U.S. 10-year yield at 1.6473% at 0847 GMT, compared to the previous session’s peak of 1.686%, which was the highest since late November.

The shift in market focus back to prospects for U.S. rate hikes has revived a rotation out of growth-sensitive stocks, such as tech firms, into ones that offer income, such as financials and industrials.

After the tech-heavy Nasdaq fell 1.3% in Wall Street on Tuesday, Asian shares fell overnight.

In Hong Kong, tech shares were also hit by China’s fines on Alibaba, Tencent and Bilibili.

European shares were mixed, with the STOXX 600 down 0.1%, retreating from the all-time high hit in the previous session. The FTSE 100 was flat, Germany’s DAX was up 0.2% and France’s CAC 40 was little changed.

The MSCI world equity index, which tracks shares in 50 countries, was down 0.1%.

“There are wobbles in the global equity markets on the back of higher back-end U.S. Treasury yields and concerns about the Chinese Tech sector,” Sebastien Galy, senior macro strategist at Nordea Asset Management, said in a client note, describing the hit to the tech sector as a “mechanical adjustment”.

“Of those concerns, we should see the fear ebb to leave us with the shape of a reality that is less clear cut than post COVID-19 shock.”

“The real story though as we start the new year is that the global economy is operating above potential as supply chains remain stretched,” Galy said.

PMI data showed French services sector growth in December came in slightly below an initial estimate, while activity in Spain’s services sector grew in December at the slowest pace since April.

Restrictions to contain the coronavirus also dampened activity in Germany’s services sector in December.

Investors remain generally calm about the economic impact of the Omicron variant of COVID-19, with analysts noting studies suggesting the risk of hospitalisation is lower.

The World Health Organization said that evidence suggested Omicron is causing milder symptoms than previous variants.

But as infections soar, the number of hospitalised COVID-19 patients in the United States has risen nearly 50% in the past week.

Hong Kong’s leader Carrie Lam announced new restrictions, including a two-week ban on flights from countries including Britain and the United States.

With inflation having surged in the past six months, investors will be looking at the minutes from the Fed’s December meeting, released at 1900 GMT, for signs of policymakers’ willingness to tighten monetary policy.

European government bond yields were mostly around one basis point higher on the day, with Germany’s 10-year yield having hit a two-month high at -0.115%.

The U.S. dollar was down around 0.1% on the day, having edged down below recent two-week highs. But expectations of Fed hawkishness still kept the yen pinned near a five-year low against the dollar.

The euro was up 0.2%.

In cryptocurrencies, bitcoin was up 1.3% at $46,414.22 – still significantly below its most recent all-time high of $69,000 reached in November.

Oil prices slipped slightly, with Brent crude futures down 0.3% and U.S. West Texas Intermediate crude down 0.3%.

(Reporting by Elizabeth Howcroft; Editing by Catherine Evans)