European shares on Friday slid to a seven-week low as financial stocks led a broader market rout after a warning from a US bank triggered worries over the sector’s balance sheet resilience in the face of rising interest rates.
The pan-European STOXX 600 index closed the day 1.35 percent lower at 453.76 and the week down 2.26 percent, its steepest weekly fall so far this year.
Banks lost 3.8 percent, the biggest one-day drop in nine months, as HSBC Holdings PLC, Deutsche Bank AG, Barclays, UniCredit SpA and Commerzbank AG dropped between 2.6 percent and 7.4 percent.
Credit Suisse Group AG’s shares hit a new record low and the financial services index dropped 2.8 percent.
In London, the FTSE 100 closed 1.67 percent down at 7,748.35, a more than a one-month low, and posted a weekly decline of 2.5 percent.
The FTSE blue-chip and mid-cap indices logged their worst weekly performance since late September last year.
The sell-off was sparked by US tech specialist SVB Financial Group’s failed scramble for fresh capital, after losing US$1.8 billion selling a package of bonds to meet depositor demands for cash.
“European banks are groaning under the weight of worry about how much value their large bond holdings will have dropped by,” Hargreaves Lansdown PLC senior investment and markets analyst Susannah Streeter said.
“Maybe they’ll start to stabilize over the next few sessions, unless another contagion takes place,” she said.
There was some brief comfort from data signaling a cooling US labor market after US Federal Reserve Chairman Jerome Powell’s hawkish remarks earlier this week.
Focus is next week shifting to the European Central Bank (ECB), which is expected to hike its key lending rate by 50 basis points.
The ECB’s terminal interest rate wouls be much higher than thought earlier, a Reuters poll showed, as stubbornly high inflation pushes policymakers to be more aggressive.
Analysts at TD Securities expect the ECB to drop its forward guidance and projections to show lower headline inflation and improved core inflation and growth.
Among other notable movers on Friday, ASML Holding NV fell 1.3 percent on uncertainty over the Dutch government’s new restrictions on chip-technology exports to China.
Software maker SAP eased 0.9 percent after US rival Oracle Corp narrowly missed quarterly revenue estimates.
Italy’s defense and aerospace group Leonardo jumped 2.9 percent, the best performer on the STOXX 600, on its full-year orders and guidance beat for this year.
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