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Europe: Stocks end week lower, dragged down by Deutsche Bank

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[LONDON] European stock markets retreated on Friday, as banking shares led by Deutsche Bank slumped on news US authorities were hunting down Germany's biggest lender over a record fine.

Frankfurt's DAX 30 was the hardest hit, closing down 1.5 per cent, while the Paris CAC 40 shed nearly one per cent compared with the close on Thursday.

London's benchmark FTSE 100 index ended the week slipping 0.3 per cent.

The US Justice Department is seeking up to US$14 billion from Deutsche Bank to resolve allegations stemming from the sale of mortgage securities in the 2008 crisis, the German financial giant confirmed.

It added that the DOJ had invited the bank to submit a counter offer, and said it expected to reach a "materially lower" figure in negotiations.

But the news hammered Deutsche Bank shares, which sank 8.5 per cent to close at 11.99 euros in Frankfurt.

The US action was also felt across Europe's banking sector, with shares in Royal Bank of Scotland in London shedding 4.4 per cent to 185.6 pence, and in Paris, French lender Societe Generale slid 2.7 per cent to 31.1 euros.

The pursuit of Deutsche "has understandably sent ripples across the sector pool, especially UK-based RBS which awaits its own bad news from across the pond," said Mike van Dulken, head of research at Accendo Markets.

On the other side of the Atlantic Friday US stocks also lost ground on weakness in bank as well as petroleum-linked equities affected by a retreat in oil prices.

Around mid-day in New York, the Dow Jones Industrial Average was down 0.45 per cent, the broad-based S&P 500 fell 0.5 per cent and the tech-rich Nasdaq Composite Index slipped 0.3 per cent.

And US shares of Deutsche Bank plunged 9.2 per cent, while large US banks also saw their share price hit, with Dow members Goldman Sachs and Citigroup losing nearly one per cent.

Asian stock markets meanwhile rallied Friday on doused expectations of a Federal Reserve interest rate hike next week after another round of below-par US data.

Equities globally have suffered during a volatile week as top Fed officials gave conflicting views on the need for tighter monetary policy, fuelling uncertainty across trading floors.

But the chances of a move at the Fed policy meeting were diminished Thursday with the release of lacklustre US retail sales figures as well as weak readings on industrial output and wholesale inflation.

In Asia, where trade was thin due to public holidays,Tokyo ended 0.7 per cent higher, while Sydney jumped one per cent, Singapore also added 0.7 per cent and Wellington climbed 0.8 per cent.

Shanghai, Hong Kong, Seoul, Kuala Lumpur and Taipei were shut.

"With nothing in the economic numbers to say US rates should be moving up, and growing signs of losing momentum, expectations have largely diminished toward the Fed doing anything in September," said ANZ Bank New Zealand chief economist Cameron Bagrie.

"The market is drifting back toward the view they might do nothing for quite a while," he wrote in a note.

Also on traders' radar next week will be the Bank of Japan's own gathering after reports that it is planning to cut interest rates further into negative territory.