Jitters returned to the markets a day after a big relief rally and could be here to stay for a while, as speculation increasesthat the worst is yet to come. But this may create opportunities for long-term investors to step in, analysts said on Wednesday.
Major European stock indexes were trading nearly one percent lower at one point on Wednesday after closing up more than 3 percent the previous day, with the rumor mill sparking fire sales. They recovered slightly later in the day.
"You can make up any rumor and go in the City and whisper it in someone's ear, it will go through the City like wildfire and shares will collapse because of it," Clem Chambers, CEO of ADVFN, told "Power Lunch Europe."
HBOS, the UK's top mortgage lender, denied an earlier rumor that it was facing problems because of the credit crunch, but its shares were still more than 9 percent down at midday.
"Bear Stearns also said 'we have no difficulties and no problems,'" Uwe Gerhardt, director sales equities trading at Close Brothers Seydler told CNBC.com. "In these times, I would not trust any statements from banks."
The UK's Financial Services Authority said it would start an investigation into trading in financials after banking stocks were battered by the rumors.
"We will not tolerate market participants taking advantage of the current market conditions to commit abuse by spreading false rumours and dealing on the back of them," the FSA said in a statement.
In Germany, Deutsche Telekom shares sank because of speculation that the company may announce a profit warning after it said it will fight the decrease in revenue from its fixed-line business.
"We're in that hopefully final mode when everybody runs around like a headless chicken. Hopefully it's the end, not halfway," Chambers said.