By Amruta Khandekar

(Reuters) -European shares fell for a second straight session on Thursday, as investors fretted about persistent inflation while downbeat earnings from BE Semiconductor and Nokia (NYSE:) added to the economic downturn jitters.

Finnish telecom equipment maker Nokia and rival Ericsson (BS:) reported weaker-than-expected earnings, bruised by ongoing patent battles which pressured margins and offset strong demand for 5G equipment.

The two firms were among the top percentage losers on the region-wide index, which was down 0.5%.

BE Semiconductor fell 3.3% after the chip equipment firm forecast a drop in fourth-quarter revenue, warning that U.S. curbs on exports to China added more uncertainty to the industry outlook.

The downbeat outlook and a worrying earnings report from Nordic Semiconductor sparked a sell-off in the chip sector, with ASM International (OTC:), ASML Holding (NASDAQ:) and Aixtron falling between 0.7% and 1%.

Most sectors on the STOXX 600 were in negative territory, with telecom falling 2% to lead the declines.

The STOXX 600 had snapped a four-day rally on Wednesday, as earnings optimism was snuffed out by worrying inflation reports from Canada and the UK that fanned fears about more aggressive policy moves from central banks to rein in prices.

"There has been a pretty negative reaction in risk assets and bond markets to the inflation data. It ultimately means central banks like the Fed and the Bank of Canada may have to do even more work to tighten," said Stephen Gallo, European head of FX strategy for BMO Capital Markets.

"None of these developments are good for non-dollar currencies. They're not good for risk appetite and they're not good for equity markets."

Adding to the concerns, data on Thursday showed German producer prices rose more than expected in September, as energy prices soared.

German government bond yields hit fresh multi-year highs, following a fresh sell-off in U.S. Treasuries, as investors assessed the impact of possible new tightening measures at next week's European Central Bank policy meeting.

However, in a bright spot, Nordea rose 0.3% as the Finnish banking group beat profit estimates, while Hermes added 0.4% after the Birkin bag maker saw a sharp pickup in sales growth with no signs of a slowdown.

Among other stocks, Swedish Match AB rose 1.7% after Philip Morris International (NYSE:) raised its buyout offer for the nicotine products maker.