By Simon Kennedy, MarketWatch
LONDON (MarketWatch) — European stock markets dropped sharply Friday as continued uncertainty over the Greek bailout hit bank stocks hard, while investors awaited a speech by U.S. Federal Reserve Chairman Ben Bernanke.
The Stoxx Europe 600 index XX:SXXP -1.96% dropped 1.8% to 223.00 in afternoon trading, extending the previous day’s losses after posting gains in the first three sessions of the week.
U.S. stock markets also opened with losses. The Dow Jones Industrial Average DJIA -0.78% fell around 60 points in early trading.
Banks were the worst performers, especially Greek lenders as National Bank of Greece GR:ETE -7.97% , Alpha Bank GR:ALPHA -8.50% and Piraeus Bank GR:TPEIR -8.33% all fell more than 8%.
The ASE Composite GR:GD -2.07% fell 2% to 871.21.
The falls came as worries over the Greek bailout continued. Greece warned that it may opt out of a debt-swap deal if not enough bond holders sign up. That warning came on top of a spat over possible collateral for countries participating in the bailout. Read more on the argument over collateral.
Germany’s DAX 30 index DX:DAX -2.59% dropped 2.6% to 5,439.81, led by banking and insurance stocks as the index extended a late downturn in the previous session.
Shares of Commerzbank AG DE:CBK -3.51% fell 4.9% and reinsurer Munich RE DE:MUV2 -3.82% dropped 3.4%.
The Frankfurt index fell as much as 4% at one point on Thursday amid unconfirmed rumors over a possible credit downgrade of Germany and an extension of short-selling bans to German stocks.
After Thursday’s close, France and some other countries that had banned short-selling said they would extend those bans.
Joshua Raymond, strategist at City Index, said the DAX has become one of the most volatile European indexes in recent weeks. That could be in part because short-selling bans in other countries mean traders have moved their attention to the DAX as a proxy for other euro-zone markets.
“It could be a case of recycling the fears from one country to the next,” Raymond said.
The heavy falls also came ahead of a keynote speech by Fed Chairman Bernanke at 10 a.m. Eastern time in Jackson Hole, Wyo. Hopes for further significant stimulus measures for the U.S. economy may be misplaced, according to economists. Read more on the expectations for Bernanke's speech.
“Expectations and hopes have dissipated over the last couple of days,” Raymond said, though he added Bernanke will have to address the market’s fears, even if he doesn’t indicate any immediate action.
“Bernanke rarely disappoints the market and he will be aware of the weight of expectations,” he added.
Peugeot, Resolution fall
In other European markets, shares of Peugeot FR:UG -2.05% dropped 2.4% in Paris after UBS downgraded the stock to neutral from buy, saying that margins have been a disappointment and that the economic outlook raised the risk of further deterioration.
Financial stocks were also heavy fallers in Paris, including a 3.5% fall for Natixis FR:KN -3.73% . The CAC 40 index FR:PX1 -2.45% dropped 2.4% to 3,043.78.
The U.K.’s FTSE 100 index UK:UKX -1.27% also dropped, down 1.1% to 5,071.76.
Insurance group Resolution Ltd. UK:RSL -2.77% fell 2.7% after Deutsche Bank cut its rating to hold from buy as part of a revamp of its insurance ratings. The broker said it had scored European insurers based on the attractiveness of a number of market and operations criteria as it also upgraded to buy from hold Admiral Group PLC UK:ADM +2.97% , shares of which rose 3.1% after slumping earlier this week.
A downgrade also weighed on Amec PLC UK:AMEC -6.28% , whose shares fell 6.1% after Societe Generale lowered the engineering and project management firm to hold from buy, saying margins are likely to weaken in the second half of the year.
On the data front, U.K. stocks were largely unmoved after the Office for National Statistics left its assessment of second-quarter growth unchanged at 0.2%.
Peripheral markets were also mostly lower, though they outperformed the core markets.
