European stock markets closed lower on Friday as investors took stock of a week of central bank rate hikes and the latest news from the banking sector.
The pan-European Stoxx 600 index closed 1.4% lower, with nearly all sectors posting declines.
European markets
Markets slightly trimmed losses after European Central Bank President Christine Lagarde told EU leaders the euro area banking sector was resilient due to strong capital, liquidity positions and post-2008 reforms. She also said the ECB toolkit was equipped to provide liquidity to the financial system if needed.
But banks dropped 3.8% despite the reassurances. Citigroup this week downgraded the European banking sector to "neutral" from "overweight," citing the effects of continued monetary policy tightening.
Deutsche Bank pared earlier losses to close 8.5% lower, extending a 3.2% fall on Thursday after its credit default swaps, a form of insurance for bondholders, pushed higher.
UBS, Societe Generale, Barclays and BNP Paribas were among the banks to fall sharply.
Oil and gas stocks closed 2.8% lower, construction stocks were down 3.1% and industrials dropped 2.5%.
"Underlying sentiment is still cautious and in this environment no one wants to go into the weekend risk-on," said Nordea chief analyst Jan von Gerich, quoted by Reuters.
The Bank of England hiked its base rate by 25 basis to 4.25% on Thursday in a move that was priced in by markets after U.K. inflation recorded a surprise jump. The Swiss central bank raised its own benchmark interest rate by 50 basis points. Both decisions come in the shadow of the U.S. Federal Reserve hiking by 25 basis points.
Global markets have also been digesting the latest comments from U.S. Treasury Secretary Janet Yellen, who said on Thursday that the emergency actions used to back up Silicon Valley Bank and Signature Bank customers could be deployed again amid concerns over U.S. regional banks.
Asia-Pacific markets closed mixed on Friday, while U.S. stocks dropped during the morning session.
— Silvia Amaro contributed reporting