By Anisha Sircar and Ambar Warrick
(Reuters) -European stocks were muted on Thursday as losses in defensive sectors were matched by gains in automakers and technology stocks on hopes of improving semiconductor supply.
The pan-European STOXX 600 ended largely unchanged at 486.05 points, with shares in healthcare, and personal and household goods falling the most, down 0.9% and 1.2%, respectively.
A recent rise in bond yields weighed on most defensive sectors as investors expected rising inflation to prompt monetary policy tightening across the developed world this year.
The STOXX 600, which hit a record high at the start of the year, has struggled to maintain gains as concerns over the impact of higher inflation, the Omicron variant and supply pressures also dulled sentiment.
European stocks could struggle to see major rallies with the looming prospects of higher rates, said Equiti Capital analyst David Madden.
"We're going to see some companies particularly in the retail space, manufacturing sectors start talking about lower margins."
Geberit slipped 4.1%, taking the construction sector lower after it said increased uncertainty made it impossible to provide outlook for 2022, and that the construction market remained fragile.
Automakers were the best performers for the day, up 1.8% after TMSC, the world's largest contract chipmaker, posted a record quarterly profit and flagged plans to ramp up production.
A chip shortage had forced several carmakers to cut production through last year, weighing on auto sales.
Tech stocks rose 0.7%, supported by gains in major chipmakers, including BE Semiconductors, ASM International (OTC:ASMIY) and Soitec.
STMicro added 2.3%, while Infineon (OTC:IFNNY) rose 2.2%.
Still, gains in the tech sector were constrained by rising yields.
European bank stocks rose 1.4%, reaching a more-than three-year high on the prospect of higher lending rates.
Meanwhile, investors continued to watch any developments on the COVID front, as Omicron-related infections shot up across the continent.
German Chancellor Olaf Scholz urged mandatory COVID-19 vaccinations for all adults, while the French Senate approved new measures to tackle the virus, including a vaccine pass.
Among other stocks, Germany's largest solar group SMA Solar Technology dropped 8.1% after a second forecast cut for 2021.
Food ingredients maker Chr Hansen rose 6.7% after reporting quarterly organic revenue growth well above forecasts.