European Banks and Lower Growth Estimates Continue to Rock Global Markets

European shares continued Thursday’s sell-off after JPMorgan (NYSE:JPM) economists lowered their estimates for economic growth in the U.S., following a similar move by Morgan Stanley (NYSE:MS) yesterday.

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“The market is very concerned about the deteriorating outlook for global growth in general and the United States in particular,” said Marcus Svedberg, chief economist at East Capital, which has 5 billion euros under management. But Svedberg acknowledges that “forecasters may be behind the curve”.

The FTSEurofirst 300 index fell 2.4% to 902.65 points, and was down to 890.74 earlier in the day. Britain’s FTSE was down 2.2%, France’s CAC40 fell 2.1%, and Germany’s DAX fell 3.9%. The banking sector was the hardest hit, with the STOXX Europe 600 Banking Index falling 2.9%, and European banks Lloyds (NYSE:LYG), KBC Groep (EBR:KBC), and Deutsche Bank (NYSE:DB) all witnessing 5% declines in their share prices.

While the United States’ economic situation holds a lot of bearing on the global economic outlook, euro-zone fiscal problems are also to blame for the sell-off, as investors are fearful that the region’s debt crises will infect the financial sector. Some European banks are now being forced to pay more for short-term U.S. dollar loans.

The financial problems of countries like Italy (NYSE:EWI), Spain (NYSE:EWP), and Greece have already infected the region’s largest economy, Germany (NYSE:EWG), pushing the German blue-chip index to a 21-month low at 5,345.36 points. The German index has already fallen 24% this month, and could record its biggest monthly drop ever, breaking its September 2002 record of a 25.5% decline.¬†Short selling was banned last week on financial shares by France (NYSE:EWQ), Italy, Spain, and Belgium.

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