European shares fall as oil prices, bond yields rise on Middle East tensions

European shares edged lower on Tuesday as crude prices rose after hopes for a lasting U.S.-Iran peace deal faded, while surging euro zone bond yields added to pressure on equities amid worries about persistent inflation.

The pan-European STOXX 600 .STOXX was down 0.2% at 654.81, as of 0703 GMT.

Iran will shift to a "fully offensive" military posture because efforts to negotiate a permanent end to the war with the U.S. have stalled, a senior Iranian official told Reuters on Monday, as Washington ruled out extending a temporary ceasefire agreement.

Energy shares .SXEP rose the most, up 0.6% as Brent crude LCOc1 climbed around 0.6% to $91.41 a barrel. O/R

On the flip side, basic resources .SXPP fell the most, down 1%, tracking lower gold prices as rising Treasury yields dampened demand for the bullion metal ahead of the release of minutes from the U.S. Federal Reserve's July policy meeting. GOL/

Euro zone long-dated bond yields hit multi-year highs on fears that a prolonged Middle East conflict could fuel inflation via higher energy prices and increase defence borrowing. Germany's 10-year Bund yield DE10YT=RR reached its highest since 2011, while France's 10-year yield FR10YT=RR hit a 16-year peak.

-Reporting by Tharuniyaa Lakshmi in Bengaluru; Editing by Rashmi Aich/Reuters