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European Stocks Sink on Bear Stearns Bailout

European stocks closed sharply lower Friday as concerns over the financial sector returned after Bear Stearns received emergency funding from the Federal Reserve and JPMorgan.

The news wiped out early gains, helped by benign U.S. retail inflation data, and sent European banking stocks into the red.

JPMorgan Chase & Co and the Federal Reserve Bank of New York on Friday agreed to provide the emergency financing to Bear Stearns after the investment bank said its cash position had deteriorated sharply, sending its shares into freefall.

European stocks stared the session higher after S&P said Thursday writedowns for large financial institutions were probably past the halfway mark and that banks had already disclosed the majority of their writedowns. But it raised its previous estimate of writedowns by $20 billion to $285 billion. U.S. stocks rebounded Thursday following the report.

Asia's markets closed mostly lower, with investors uncertain about whether the worst is over in the credit markets and concerned about a persistently weak U.S. dollar.

In corporate news, insurer Prudential reported a 25 percent increase in full-year operating profit, as expected, benefiting from new business in the U.S. and Asia. Pru shares fell 4.9 percent.

In other earnings reports, Swiss watchmaker Swatch said its full-year profit jumped 22 percent and expects a promising 2008. But the company did warn that high gold prices will create 'new challenges'. Shares of Swatch sank 5.5 percent.

In economic news, the soaring price of oil pushed euro zone inflation to hit a new record high of 3.3 percent in February, official data showed.

And in politics, European Union leaders are confident the European economy is coping well despite the market turmoil, as heads of state convene for a second day in Brussels with climate change and energy also on the agenda.

- Reuters contributed to this report.