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EZ business activity contracts in May

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U.S. debt concerns weigh on markets

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Johnson Matthey ( JMPLF ) soars on Honeywell ( HON ) deal

(Updates with morning prices)

By Sruthi Shankar

May 22 (Reuters) - European stocks fell on Thursday, as

concerns over U.S. fiscal health kept Treasury yields elevated,

while data showed euro zone business activity unexpectedly

slipped back into contraction this month.

The pan-European STOXX 600 index was down 0.8% as

of 0846 GMT, retreating further from a two-month high touched

earlier this week.

Investors this week have been grappling with lack of

progress on trade deals as well as U.S. President Donald Trump's

sweeping tax cut plans, which have raised concerns about

ballooning U.S. debt and sent government bond yields surging.

In a clear sign of the impact of U.S. tariffs on the

eurozone economy, HCOB's preliminary composite eurozone

Purchasing Managers' Index dropped to 49.5 this month from 50.4

in April.

The survey showed that the bloc's dominant services

industry suffered a deeper downturn in demand, although

manufacturing showed further signs of stabilisation.

"It's worrisome that the main culprit is the service

sector, which has long been the main engine of growth for the

eurozone," said Bert Colijn, chief economist at ING.

"The trade war is weighing on the eurozone economy, but

likely mostly through the uncertainty channel rather than direct

trade effects so far."

U.S. stocks closed sharply lower on Wednesday, as the

benchmark 10-year U.S. Treasury yield climbed to

three-month highs on worries that U.S. government debt would

swell by trillions of dollars if Congress passes President

Donald Trump's proposed tax-cut bill.

The House of Representatives voted on Thursday roughly along

party lines to begin a debate that would lead to a vote on

passage later in the morning.

While U.S. yields held steady, German long-term bond

yields hit a two-month high on Thursday.

Among single stocks, Johnson Matthey ( JMPLF ) soared 28% in

its biggest percentage gain in years after the British chemicals

firm agreed to sell its unit to Honeywell International ( HON )

for 1.8 billion pounds ($2.4 billion), including debt.

Tomb Raider owner Embracer fell 15.3% after

it forecast slight revenue growth and broadly unchanged earnings

for its fiscal 2025/26 and said that at least one of its nine

AAA game releases slated for the following two financial years

would be pushed back.

Freenet AG slid 14.8% after the German telecoms

firm reported its first-quarter numbers.