European shares ended Friday and the week firmly in the red after global growth, sovereign debt and bank funding concerns led a broad-based flight from equity market risk and helped push an index of leading lenders to a fresh two-year low.
Banks fell from the open, hit the low and remained under the cosh throughout, with rising borrowing costs the latest problem to hit the battered sector as it grapples with a regional debt crisis.
Persistent concern over the handling of the crisis, particularly the lack of political unity, and the region's piecemeal short-selling ban also contributed to the sector slide, traders said.
UK and German banks, not covered by a ban, were among the worst hit, with Lloyds Banking Group down 4.8 per cent and Deutsche Bank off 2.7 per cent, although other continental heavyweights such as Santander also fell.
The day's fall was "a continuation of the same two themes: concern over the prospects for world growth and concern over the stability of the euro zone", Alan Brown, chief investment officer at Schroders, said.
"As often happens at times of great uncertainty, natural value buyers will often sit on the sidelines rather than try to catch the proverbial falling knife. Thin August markets compound the problem," he wrote in a note.
The slide was still not enough to tempt bargain hunters, Markus Huber, head of sales at ETX Capital said, because "many who have jumped into the market on previous occasions when there was a major sell-off have been severely burned".
Falls for other peripheral euro zone lenders, including KBC, down 3.9 per cent, pushed the regional index down 3 per cent.
Chalking up a fourth straight week of declines - and down 6 per cent this week - the FTSEurofirst 300 index closed down 1.7 per cent at 909.79 points.
It is now down 16 percent this month - on track for its biggest monthly drop since being launched in 1999 - and 19 per cent this year.
Investor flight from assets perceived as more risky was also visible in the Euro STOXX Volatility index rising 0.3 per cent to a near two-and-a-half-year high, as well as fresh inflows into gold, the Swiss franc and core-Europe government bonds.
Among the worst hit of regional indexes was Spain's IBEX 35, down 2.1 per cent by the close, weighed by Madrid's announcement of fresh austerity cuts, albeit with some tax measures to try and stimulate growth.
Elsewhere, concern about growth was evident in a report by JPMorgan, which became the latest bank to lower its US growth forecasts, a feeling also reflected at the corporate level, with Fiat Industrial hit by a Goldman Sachs downgrade.
The stock led blue-chip fallers across the region and ended down 6.4 per cent, just off a record low, in heavy volume nearly two-and-a-half times the 90-day daily average.
Bucking the downwards trend and propping up the STOXX Europe 600 Tech index , one of two sector gainers, was Autonomy, up a chunky 72 per cent after an $US11.7 billion takeover bid from US firm Hewlett-Packard .
As a result of the recent sharp sell-off in European equities, the price-earnings ratio of the STOXX Europe 600 has a one-year forward price-to-earnings ratio of just 8.7, against a 10-year average of more than 13.
Reuters