(fxcue news) - European stocks may succumb to selling pressure on Tuesday as investors fret about rising bond yields and the recent surge in oil prices due to heightened tensions in the Middle East. The U.S. Treasury 10-year yield topped 4 percent for the first time in more than two months on Monday as traders trimmed their bets on Federal Reserve rate cuts. Oil prices fell more than 1 percent in Asian trading after rallying over 3 percent to their highest in over a month on Monday. Concerns eased over potential supply disruptions, with investors awaiting greater clarity on how Israel will retaliate against Iran. Some analysts say an attack on Iranian oil infrastructure is unlikely and oil prices could face considerable downward pressure if Israel focuses on any other target. Gold held steady and the dollar clung to seven-week highs against major currencies ahead of key readings on U.S. consumer price and producer price inflation and the release of FOMC September meeting minutes this week. Federal Reserve Bank of St. Louis President Alberto Musalem said on Monday he supports additional interest-rate cuts, adding cutting rates at a gradual pace seems to make sense. Investors also await earnings announcements from major banks, with analysts expecting the largest U.S. banks to report bigger hauls out of their investment banking operations from a year ago. On the geopolitical front, Israeli forces killed at least 77 people across the Gaza Strip on Monday while Lebanon's Hezbollah claimed missile attacks on the Israeli port city of Haifa and a military base near the central city of Tel Aviv. Asian markets were broadly lower due to concerns surrounding the Middle East conflict and Fed rate path. Japan's Nikkei fell over 1 percent as better-than-expected Japanese household spending data lifted demand for yen. Chinese markets gave up a chunk of their initial gains as traders returned to their desks after a weeklong holiday. Hong Kong's Hang Seng index plunged more than 7 percent as a much-anticipated briefing by China's top economic planner ended without new pledges to boost government spending. Overnight, U.S. stocks ended sharply lower as traders pared bets on aggressive Federal Reserve interest-rate cuts and fretted about the impact of rising oil prices on inflation and interest rates. The Dow dipped 0.9 percent, the S&P 500 shed 1 percent and the tech-heavy Nasdaq Composite lost 1.2 percent. European stocks eked out modest gains on Monday buoyed by last Friday' rally on Wall Street. The pan European STOXX 600 edged up 0.2 percent. France's CAC 40 rose half a percent and the U.K.'s FTSE 100 added 0.3 percent while the German DAX finished marginally lower.