European stocks fall as US bank jitters spark flight to safety

FRANKFURT: European shares fell on Friday, as signs of credit stress at US regional lenders unnerved investors and drove them into safe-haven assets.

The continent-wide STOXX 600 index closed nearly 1 percent lower, but still logged a modest weekly gain of 0.4 percent.

European banks were down 2.5 percent, with Deutsche Bank , Barclays, Italy’s Unicredit and France’s BNP Paribas all losing between 3.3 percent and 6.5 percent.

US regional bank stocks fell after two lenders disclosed loan fraud, driving concerns around credit quality after two recent US auto bankruptcies had put investors on edge about the sector’s exposure.

The selloff comes more than two years after Silicon Valley Bank’s failure, when high rates drove paper losses on its bonds.

The flight to safety pushed gold to a record high of USD4,378.69 per ounce.

“If the latest credit jitters have a more profound impact on broader credit and equity valuations, and financial conditions tighten, then the Federal Reserve will respond and the trajectory towards 3.5 percent next year could be in place,” said Kenneth Broux, senior strategist at Societe Generale.

Luxury stocks helped cushion the broader market as Ray-Ban maker EssilorLuxottica jumped 13 percent, adding nearly USD20 billion in market value as investor enthusiasm for its AI-powered Ray-Ban Meta glasses gathered momentum.

Luxury was also the best performing sector this week, powered by LVMH, which beat forecasts and reported its first quarterly sales rise this year.

Continental AG was up 11.3 percent after the German auto supplier’s preliminary third-quarter sales came in at 5 billion euros - just ahead of its own consensus forecast.

An absence of US economic data due to a prolonged government shutdown, simmering trade tensions between the US and China, as well as concerns about stretched valuations in the technology sector have kept markets in check this week.

French stocks posted their best weekly performance in nearly six months, though, after Prime Minister Sebastien Lecornu survived twin no-confidence votes having shelved controversial pension reforms - a move that could eventually help pass a tough budget.