Volkswacht Bodensee - Stocks retreat as US credit fears pile on pressure

Sentiment soured after two regional US banks disclosed issues with loans, sparking a sell-off in banking stocks on Wall Street Thursday.

Losses spread to Asia at the end of the week, where Hong Kong and Shanghai dropped more than two percent, and Tokyo also closed lower.

In Europe, major indices in London, Paris and Frankfurt were all down nearing the half-way mark.

Deutsche Bank shares slumped seven percent in Frankfurt, while French bank Societe Generale and Britain's Barclays both shed around six percent.

"It's the banking sector that's the root cause of a minor market sell-off today," said Russ Mould, investment director at AJ Bell.

"Investors have started to question why there have been a plethora of issues in a short space of time and whether this points to poor risk management and loose lending standards," he added.

Investors have been nervously watching the US banking sector since parts company First Brands and subprime lender Tricolor filed for bankruptcy in September, with the former owing billions to lenders.

Those fears deepened this week after Zions Bancorp disclosed a $50-million charge tied to commercial loans from its California arm, while Western Alliance said a borrower failed to deliver the promised collateral.

It sent safe-haven gold to set another record of $4,379.93 an ounce, and led investors to pile into government bonds.

Thursday's developments dealt another blow to the optimism that had fuelled markets this year, as investors grow increasingly uneasy about stretched tech valuations and the possibility of an AI-driven bubble bursting.

"The credit losses announced by two regional banks were limited and seem to be contained," said Richard Hunter, head of markets at Interactive Investor.

But "investors are on high alert", he added.

Investors remained on edge as Washington and Beijing exchanged salvos this week on trade and shipping, after US President Donald Trump warned he would hit China with 100 percent tariffs over its rare earth export controls.

Adding to unease, lawmakers in Washington are still no closer to ending a government shutdown that has delayed the release of key economic data used by the Federal Reserve to decide on policy.

Still, expectations the Fed will cut interest rates at least once more this year has given traders some support.

Crude prices extended losses on worries about China-US tensions, with selling also coming from news that Trump will meet Russian counterpart Vladimir Putin to discuss ending the conflict in Ukraine.

In other company news, shares in Swedish truck-maker Volvo Group slumped seven percent after it reported a sharp drop in third-quarter net profit.

While Ray-Ban maker EssilorLuxottica, the world's top maker of eyeglasses, soared more than 11 percent in Paris following a surge in its third-quarter sales.

- Key figures at around 1040 GMT -

London - FTSE 100: DOWN 1.2 percent at 9,323.23 points

Paris - CAC 40: DOWN 0.7 percent at 8,133.08

Frankfurt - DAX: DOWN 2.1 percent at 23,773.59

Tokyo - Nikkei 225: DOWN 1.4 percent at 47,582.15 (close)

Hong Kong - Hang Seng Index: DOWN 2.5 percent at 25,247.10 (close)

Shanghai - Composite: DOWN 2.0 percent at 3,839.76 (close)

New York - Dow: DOWN 0.7 percent at 45,952.24 (close)

Euro/dollar: UP $1.1695 from $1.1692 on Thursday

Pound/dollar: DOWN at $1.3432 from $1.3436

Dollar/yen: DOWN at 149.83 yen from 150.35 yen

Euro/pound: UP at 87.06 percent from 87.02 pence

West Texas Intermediate: DOWN 0.8 percent at $56.53 per barrel

Brent North Sea Crude: DOWN 0.9 percent at $60.51 per barrel

G.Schmid--VB