- European stocks post heavy losses; euro falls; peripheral yield spreads widen - Euro-zone debt crisis in focus as troika talks with Greece suspended - Jitters ahead of nonfarm payrolls release - Banks under pressure following NYT report By Michele Maatouk Of DOW JONES NEWSWIRES LONDON (Dow Jones)--European stocks fell sharply Friday along with the euro, and peripheral yield spreads widened, as fresh headlines surrounding Greece and the euro-zone debt crisis prompted investors to ditch risky assets. At the same time, jitters ahead of the release of U.S. nonfarm payrolls added to the negative mood. By 0805 GMT, the benchmark Stoxx Europe 600 index was down 1.5% at 235.28. Frankfurt's DAX was down 2.1% at 5613.58, Paris's CAC-40 was 1.9% lower at 3204.88 and London's FTSE 100 was 1.6% lower at 5332.21. News that talks between Greece and a visiting troika of international inspectors have been suspended amid a dispute over the country's ability to meet its deficit targets set the tone early Friday. The delegation of European Union, International Monetary Fund and European Central Bank officials is expected to return in about 10 days after the Greek government has prepared the draft outlines of its 2012 budget, a Greek official said. The news hit the euro, which by 0805 GMT, was trading at $1.4239 against the dollar, from $1.4260 late Thursday in New York and at CHF1.1205 from CHF1.1343. The Swiss franc gained against the dollar, which was at CHF0.7875 from CHF0.7949. Investors headed to the safety of gold and bunds, pushing the yellow metal up $21.20 at $1,850.00 per troy ounce, from its New York settlement on Thursday. The September bund futures contract was up 57 ticks at 135.87. As far as peripheral spreads were concerned, the 10-year Italian bond yield rose 7 basis points to 5.21%, widening the yield spread over similar dated German bunds to a near one-month high of 315 basis points. The 10-year Spanish/German yield spread widened 10 basis points to 302 basis points and the 10-year Greece/Germany yield spread widened by 10 basis points to 1544 basis points. The cost of insuring European sovereign debt against default also drifted higher, with the Sovx Western Europe Index of 15 sovereigns widening by 8 basis points from Thursday's close. Meanwhile, traders said this month's U.S. payrolls report has taken on even more significance than usual, as the outcome could trigger the Federal Reserve's next move with regard to monetary policy. "A below-par nonfarm payrolls figure will cement expectations that the Fed is going to act sooner rather than later," said Markit. "But the market is not as sure as it was about the efficacy of [quantitative easing], so risky assets could still suffer from a negative surprise. Conversely, a positive surprise could be overlooked as it might delay action from the Fed," it added. The consensus is for nonfarm payrolls to show a 80,000 increase in August, following a 117,000 rise the previous month. Doubts over global growth prospects also weighed, after the White House downgraded its outlook for the U.S. economy, forecasting unemployment could average 9% in 2012. It also predicted slower-than-expected growth for the next several years. These concerns were a drag on oil; October Nymex crude oil futures were down 59 cents at $88.34 per barrel at 0805 GMT. In terms of sectors, banks featured among the worst performers, following a New York Times press report stating that Fannie Mae and Freddie Mac are planning to file a suit against over a dozen major U.S. banks over the alleged misrepresentation of mortgage-backed securities. The Stoxx Europe 600 banks index slipped 2.2% to 141.32. Nonfarm payrolls and the unemployment rate are due at 1230 GMT. Ahead of that, the euro-zone producer price index is at 0900 GMT. In Asia, shares were mostly lower Friday, with stocks in Tokyo weighed on by soft data while the Chinese market continued to falter on persistent concerns that Beijing will further tighten policy. Tracking Wall Street's weak start for September, Japan's Nikkei Stock Average shed 1.2%, Australia's S&P/ASX 200 fell 1.5%, South Korea's Kospi Composite was down 0.6%, Hong Kong's Hang Seng Index fell 1.3% and China's Shanghai Composite Index lost 1.3% . -By Michele Maatouk, Dow Jones Newswires; +44-20-7842-9447; michele.maatouk@dowjones.com

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