European stocks finished the week lower, dragged down by news that British mortgage-lender Northern Rock was forced to ask for an emergency loan from the Bank of England.
The London FTSE-100 , Paris CAC-40 and Frankfurt DAX were all sharply lower, while the FTSE CNBC Global 300 also fell.
U.S. stocks were trading well off session lows, but traders remained cautious on credit jitters, weak retail data and uncertainty about future Fed action.
Northern Rock, one of the biggest U.K. mortgage-lenders, has very limited exposure to subprime lending, but faces a liquidity squeeze as it acquires most of its funding through money markets.
The offer of funding was approved by Bank of England Governor Mervyn King and U.K. Chancellor of the Exchequer AlistairDarling, who separately also called on economic policymakers around the globe to come to the aid of financial markets with a coordinated response.
Volatility Ahead
Economists said Northern Rock was likely to survive the moment but will have to rethink its business model.
"The only issue that we have is, should we expect further losses?" Alain Tchibozo from ING Securities told "European Closing Bell," adding that the bank had to deleverage its balance sheet.
Shares of Northern Rock plunged over 30%, making it a takeover target, and banking stocks dominated the loser boards across all of the major European indexes.
The future of ABN Amro was in focus as Barclays announced it was prepared to drop its 60 million euros ($83 million) takeover proposal for the Dutch bank if it didn't meet its stringent economic criteria. Barclays CEO John Varley said he remained committed to the bid, however. Shares of Barclays closed over 3% lower and ABN was off by 0.5%.
In other news Britain's Cadbury Schweppes rejected a $13 billion to $14 billion offerfor its drinks arm from a private equity consortium, due to financing worries. The chocolate maker's shares ended the day 1.3% lower.
Trading is likely to remain volatile at the end of next week, economists say, with all eyes on the U.S. Federal Reserve's meeting on Tuesday to see by how much the Fed will cut rates to save the broader economy from the spillover of the financial market turmoil.