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European stocks extended falls on Friday, dragged down by Credit Suisse and as an array of data pointing to an economic downturn in the region added to worries over a hawkish Federal Reserve.

The pan-European STOXX 600 index was down 0.4%, as of 0806 GMT, hovering near 20-month lows and set to end its second straight week lower with falls of 2.6%.

Banks fell 0.6%, with Credit Suisse shedding 6% to hit a record low.

The Swiss bank sounded out investors for fresh cash, two people familiar with the matter said, approaching them for the fourth time in roughly seven years as it attempts a radical overhaul of its investment bank.

Still, the banking index in Europe was set to sharply outperform the benchmark STOXX 600 in September on bets of the sector being boosted by a high-interest rate environment.

Interest rates were sharply increased through the week, with the Fed delivering its third consecutive 75 basis-point (bp) hike on Wednesday and Switzerland exiting the era of negative interest rates on Thursday.

The Bank of England (BOE) also raised rates by a hefty sum this week, while the European Central Bank (ECB) earlier this month raised its policy rate by 75 bps.

European shares recover from geopolitical shock ahead of big Fed move

“If you just look at the main macro events this week from the Fed, the BOE and central banks around Europe, they have been on a rate-hiking spree,” said Stuart Cole, head macro economist at Equiti Capital.

“We also had comments from the ECB that they would have to raise interest rates going forward and the market is expecting at least another 50-bp hike while worrying about the threat of a recession.”

Big day for data

A survey showed the downturn in business activity across the euro zone deepened this month and the economy is likely entering a recession as consumers rein in spending amid a cost of living crisis.

Germany’s DAX index fell after a survey showed the downturn in German business activity deepened in September as higher energy costs hit Europe’s largest economy.

The French economy performed better than expected in September, as activity in the dominant services sector accelerated.

However, the manufacturing sector contracted from the previous month.

Paris shares fell 0.1%. The Spanish statistics agency reported a better-than-expected economic growth figure of 1.5% for the second quarter.

Spain’s IBEX 35 index dropped 0.6%.

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