UPDATE 2-European stocks muted as rise in yields, inflation bets curb initial gains

* German DAX retreats from record highs
* UK stocks gain on optimism over budget
* Automobile, travel stocks lead gains

(Updates to market close)
By Sruthi Shankar and Ambar Warrick
March 3 (Reuters) - European stocks ended flat on Wednesday,
with gains in economy-sensitive sectors offset by a rise in bond
yields as investors raised their inflation expectations for the
year.
Consumer-oriented automobile .SXAP and travel .SXTP
stocks were the day's best performers, while British stocks
.FTSE .FTMC rose after finance minister Rishi Sunak extended
emergency programmes to support the economy through the COVID-19
pandemic. A strong outlook from Stellantis STLA.MI boosted the
automobile sector. The pan-European STOXX 600 index .STOXX ended largely
unchanged after opening stronger, with utility stocks .SX6P
leading losses in the euro zone.
Utilities are often considered as proxies for bonds, and are
sold off when debt offers relatively higher yields.
European bond yields rose on Wednesday, while a market gauge
of long-term euro zone inflation expectations rose to its
highest level since May 2019. GVD/EUR
Healthcare .SXDP and technology shares .SX8P also
suffered big losses as focus turned away from defensive stocks
and towards sectors more likely to benefit from an economic
recovery.
"Healthcare has performed well during difficult periods in
the market. Now that conditions have improved, people are
considering general recovery areas which are benefiting from a
recovery economy," said Chris Bailey, European strategist at
Raymond James.
Hopes of COVID-19 vaccines spurring a return to economic
normality drove optimism about euro zone business activity to a
three-year high in an IHS Markit survey. British bank stocks rose after Sunak said the UK would
review a tax surcharge on bank profits to make them more
competitive against foreign rivals. But Sunak also announced future tax hikes to offset the
large hole left in public finances by current spending.
German stocks .GDAXI ended about 0.3% higher as investors
anticipated a gradual easing of coronavirus curbs as a sluggish
vaccination campaign accelerates. Falls in major technology
stocks helped to drag them down from a record high hit earlier
in the session, however. Automobile supplier Continental CONG.DE jumped 5.4% after
UBS upgraded its rating to "buy", citing "attractive" value
creation from the company's plans to spin off its powertrain
unit Vitesco. Swiss logistics group Kuehne & Nagel International KNIN.S
rose 7.1% to the top of the STOXX 600 as it notched up record
full-year operating profit.
Shares in UK insurer Hiscox Ltd HSX.L tumbled 11.8% to the
bottom of the STOXX 600 as the firm swung to a huge loss for
2020 and continued to withhold a dividend.