Stocks end 3.5% down on global growth concerns; banks slip 5.6%

European markets tumbled at Monday's close to finish sharply lower, as heavy losses in several sectors, a continued decline in commodity prices and Friday's mixed U.S. employment data, added to concerns over global growth.

The pan-European STOXX 600 fell to close near session lows, off 3.5 percent provisionally. Meanwhile, Europe's FTSEurofirst 300 fell to end 3.4 percent down, hitting its lowest level since October 2013.

Germany's DAX briefly fell below the 9,000 mark more than once during trade, for the first time since late October 2014, with its index closing 3.3 percent down. London's FTSE was off 2.7 percent, while France's CAC 40 finished 3.2 percent lower.

The Athens index was Europe's worst-performing index, closing 7.9 percent lower, with analysts saying the fall was due to uncertainty that a bailout review by the country's lenders could drag on, Reuters reported.

Italian banks slump

In the U.S., markets followed the sharp downward trend, as falling oil prices and concerns surrounding a U.S. rate increase weighed on sentiment. The poor performance in the U.S. dragged European equities lower.

European banks were once again in focus for investors. Italy's UniCredit lost early gains after Leonardo Del Vecchio, an investor in the lender, said that it might need to make management changes, according to La Repubblica newspaper. Shares closed almost 6 percent down.

Shares of Intesa SanPaolo fell by 4 percent after several banks cut Intesa Sanpaolo's target share price, including Barclays and JP Morgan. This follows on from the company's recent earnings report on Friday.

Several Italian banks were feeling the pinch Monday, with Banca Monte dei Paschi di Siena slumping some 12 percent after receiving a cut to its stock price target from JPMorgan and Exane BNP Paribas. Many analysts are bearish on the sector.

"The questions of non-performing loans as well as shrinking margins are creating an increasingly difficult environment for European lenders and it would appear that investors are slowly waking up to the reality that negative rates aren't likely to help the profitability of a sector that is still dealing with the legacy of the sovereign debt crisis," chief market analyst at CMC Markets, Michael Hewson said in a note Monday.

Meanwhile, HSBC closed over 4 percent down after it was fined $470 million to settle U.S. charges around the bank's mortgage practices.

Shares in Barclays were temporarily suspended during Monday's trade due to outsize moves, during a volatile session for European banking stocks, Reuters reported. Shares however resumed trading, to close down 5.3 percent.

Other European sectors sensitive to macroeconomic activities, such as autos, media, construction and technology, all fell to close sharply lower, off over 4 percent each.

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Markets continued to digest U.S. nonfarm payrolls data published on Friday. The U.S. economy added 151,000 jobs in January, according to the Bureau of Labor Statistics, against economists' expectations of a gain of 190,000. The unemployment rate, however, fell to 4.9 percent from 5 percent, while wages rose 0.5 percent. Overall, the data raised expectations for another interest rate hike by the U.S. Federal Reserve in 2016.

"It is these concerns about global growth, the Chinese economy and global deflationary forces that has seen equity markets remain under pressure since the beginning of the year," said Hewson, adding that recent events appear to have "caused concern among some senior Fed policymakers with notable shifts in tone."

Earlier, markets across Asia rang in the Year of the Monkey on a mixed note, erasing early losses in afternoon trading on Monday. Markets in mainland China and Taiwan are closed all week for the Lunar New Year holiday.

Oil prices fell back into the red on Monday, as supply glut concerns grew and any progress with OPEC helping alleviate the volatile oil market appeared bleak. Brent slipped, last standing at $33.74, while U.S. crude fell further, hovering around $30.50 a barrel. Stocks slumped on price decline, with Seadrill off over 14 percent.

Gold rally 'not central scenario'

On the earnings front, gold producer Randgold Resources reported a fall in net profit in the fourth quarter from the previous quarter but the company raised its dividend after output increased. On top of a pick up in gold prices, the news made Randgold Europe's best performer, with shares up over 13 percent. Precious metals firm Fresnillo followed suit, closing up 7.8 percent on the back of a jump in silver prices.

Metals saw a boost last week as the dollar weakened but the U.S. jobs report boosted the dollar on Friday, pushing metals prices lower into the new trading week. While the gold price got a boost from the weaker dollar amid economic growth concerns, analysts said that the metal will only rally if the Fed changes its policy, which is not the "central scenario".

"Ultimately for gold to continue to rally, you need to see a change in course for Fed policy this year. And so the way I would view gold is as a hedge in the portfolio. It's not a central scenario that the Fed completely reverses course, certainly rate hikes could be pushed out further," Johanna Kyrklund, head of multi-asset investments at Schroders, told CNBC.

"The environment where they do that will probably be a very negative environment for growth and for markets and so I think gold for that reason is attracting interest as a hedge in people's portfolios."

The rest of the basic resource sector struggled to find gains, with ArcelorMittal closing over 7 percent down, however, Glencore and Anglo American reversed losses to close higher.

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