A slide in European bank and energy stocks was exacerbated by hawkish comments from a US Federal Reserve official, which also saw the STOXX 600 index snap a four-week winning streak as fears of US policy tightening came to the fore.
The pan-European STOXX 600 index ended 1.58 percent lower at 452.05 in its worst day in five weeks, with bank and energy stocks leading declines. The index also dropped 1.19 percent this week.
Sentiment was also dented by the EU losing its bid for speedier COVID-19 vaccination deliveries from UK drugmaker AstraZeneca PLC, which could slow the pace of a steady vaccination campaign.
The banking sector, which typically does well when interest rates are high, plunged nearly 3 percent as concerns over an eventual reduction in liquidity saw investors locking in recent gains.
St Louis Fed President James Bullard said the Fed could start tightening rates as soon as late next year, calling it a natural response to economic growth and inflation moving quicker than expected, as the US reopens from the COVID-19 pandemic.
His comments came after the Fed signaled a hawkish tilt earlier this week, which had rattled risk-driven markets.
Commodity markets were also hit by the Fed, with European energy stocks falling 2.9 percent on Friday, in line with lower oil prices.
Basic resources stocks were the worst performers this week, down nearly 8 percent as fears over Chinese caps on copper prices weighed. The sector had its worst week since the peak of the pandemic in March last year.
“The market has been polarized in certain positions,” TS Lombard head of strategy Andrea Cicione said. “We’ve been very positive on financials and energy since last November and now we’re seeing a reversal of that as investors scale back, but this is temporary phase; there’s definitely more upside for financials and energy, which are still relatively cheap.”
London’s FTSE 100 index on Friday marked its worst session in more than a month, dragged by weakness in financial and commodities-linked stocks, while data showed retail sales fell last month as Britons dined out more following a lifting of pandemic restrictions.
The blue-chip FTSE 100 ended 1.9 percent down at 7,017.47 and shed 1.63 percent this week, snapping a win streak of three consecutive weeks in gains.
Banking and life insurance stocks, down 2.7 percent and 2.5 percent respectively, were among the top drags.
Base and precious metal miners, slid 2.4 percent and 0.2 percent respectively, as commodity prices fell, while oil majors BP PLC and Royal Dutch Shell PLC fell 2.7 percent and 3.1 percent respectively, tracking weaker crude.
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