European stocks closed broadly lower Thursday as profit-taking set in and the financial sector took another hit.
The London FTSE-100 , Paris CAC-40 and Frankfurt DAX closed lower, while the FTSE CNBC Global 300 finished the day in positive territory.
On Wednesday, all indexes closed firmly in the green after the U.S. Federal Reserve's bold move to slash rates by 50 basis points.
"Yesterday's dramatic relief rally was probably too exuberant," David Buik, Partner at BGC Partners, told CNBC.com.
U.S. stocks also traded slightly lower following comments from U.S. monetary officials and mixed results from the investment banking industry.
Federal Reserve Chairman Ben Bernanke told Congress the credit crisis has created "significant market stress" and offered fresh assurances that regulators would take steps to curb fallout related to the mortgage mess.
Investment bank Goldman Sachs offered markets a nice surprise when it posted higher than expected earnings, but Bear Stearns said its profit plunged 62% in the third quarter, as turbulence in the debt market and wrong-way bets on mortgages hurt the investment bank's credit portfolio and bond business.
European Banking Slump
In Europe, the banking sector slumped again, with Deutsche Bank, Commerzbank, Credit Agricole and BNP Paribas shares losing ground on fear of their potential exposure to the credit markets crisis.
Germany's Deutsche Bank, one of the largest players in the global debt market, and Commerzbank followed Wall Street's Morgan Stanley in acknowledging losses from the credit market squeeze would hit their profits.
Shares in U.K. mortgage lender Northern Rock continued to sinkas no suitable buyer was in sight for the troubled bank, which last week saw customers queuing outside its branches to move their deposits to safety.
Buik said the volume of Northern Rock shares traded on Thursday was around 141 million shares, compared with an average of 9 million traded daily last week before the crisis emerged. Northern Rock stock closed nearly 28% down.
"I'm afraid hedge funds and short-term speculators vented some spleen here," Buik said.
Mervyn King, Bank of England Governor, came under fire from the Treasury Select Committee for the central bank's handling of the banking turmoil and the subsequent run on the U.K. mortgage lender. He hit back, however, and denied it had performed a policy U-turn on not bailing out markets.
Borse consolidation was back in the frame as Nasdaq teamed up with Borse Dubai to take over the Nordic exchange OMX. Qatar's state investment fund, the Qatar Investment Authority, then stepped into the fray by buying a 20% stake in the London Stock Exchange. OMX shares closed 7.7% higher.
Also on the merger and acquisition front, the potential takeover of J. Sainsburyby Delta Two looks a step closer as the U.K. supermarket operator allowed the Qatari-backed investment fund access to its books. Shares of Sainsbury gained 2.8%.