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European Stocks Close Down on US Budget Concern

European shares closed down on Friday, with losses led by the banking sector, in tandem with weakness on Wall Street due to ongoing concerns about the U.S. fiscal policy outlook.

European Markets

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The FTSEurofirst 300 closed provisionally down 1 percent at 1,068.34 points, within a whisker of the day's low.

Europe's banking index closed over 1.77 percent lower, with Portugal's Banco Espirito Santo , Germany's Commerzbank and France's Natixis all closing sharply in the red.

Investors worried about the potential impact of the U.S. "fiscal cliff" of spending cuts and tax hikes due to kick in early 2013, as President Barack Obama and congressional leaders prepared for budget and tax talks on Friday.

"As soon as America opened... the sellers have been coming in," Will Hedden, trader at IG in London, said.

"We've hardly been talking to anyone about what's going on in Europe — everyone's worried about America, and I think it's going to continue."

Greece was also in focus again on Friday, with nagging concerns over the country's debt sustainability and a row between euro zone governments and the IMF over how to make Greece's huge debt manageable, blocking the release of 31 billion euros in loans that the country needs to stay afloat.

German Chancellor Angela Merkel urged a quick solution for the Greek debt crisis on Thursday, though she rejected the idea of euro zone governments taking losses on Greek loans.

"I hope that the time is near when we can reach the solution that is needed," Merkel said when asked about Greece at a joint news conference with French Prime Minister Jean-Marc Ayrault. "Of course we did not talk about debt haircuts, you know our view and that has not changed, nor should it," she said.

Meanwhile, tensions and military action have increased in the Middle East as Israeli ground forces are now moving closer to the border with Palestine. After two days of air strikes by the Israeli Defense Forces, 19 Palestinians, including 12 civilians, have been killed.

While the Israeli and the Palestinian conflict stoked worries about oil supply, brent futures held around $108 a barrel on Friday as uncertainties surrounding the global economic outlook capped gains.