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Europe Stocks Slammed; Germany Drops More Than 5%

SEPTEMBER 5, 2011, 1:26 P.M. ET.
Europe Stocks Slammed; Germany Drops More Than 5%
By Barbara Kollmeyer and Toby Anderson

European stocks plunged Monday and the euro tumbled, as investors piled into safe-haven assets amid rising fears over Europe’s sovereign debt crisis and economic growth on both sides of the Atlantic.

The Stoxx Europe 600 index slumped 4.1% to close at 223.45 on Monday, a day when U.S. markets were shuttered for the Labor Day holiday.

The yield on the benchmark 10-year German government bond plunged to well below 2%, a new record, while Italian yields rose on fears the government’s commitment to austerity and reform is weakening.

Europe’s beleaguered banking sector was battered over concerns about growth as well as lawsuits filed against 17 lenders Friday by the top U.S. federal housing regulator, saying they sold $196 billion of risky home loans over four years to Fannie Mae and Freddie Mac without adequately disclosing the risks.

Further evidence of the weakness of the European economy came in weak purchasing managers index data from France, Germany and the euro zone as whole.

“The banking sector continues to [be] under pressure,” said Manoj Ladwa, senior trader at ETX Capital, in emailed comments. “The chances of a near-term recovery remain slim as euro-zone debt concerns, structural reform and a lawsuit for allegedly mis-selling mortgage debt all weigh heavy on the sector.”

Shares of Royal Bank of Scotland Group (RBS, RBS.LN), one of the banks named in the U.S. lawsuit, plunged 12%, while Deutsche Bank (DB, DBK.XE), another one of the banks, tumbled 8.9%. Among others, Societe Generale (GLE.FR, SCGLY) skidded 8.6%, Barclays (BCS, BARC.LN) slumped 6.7%, and HSBC Holdings (HBC, HSBA.LN) declined 3.8%

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