(MENAFN) European equity markets closed lower on Friday as investors reacted to rising tensions in US-China trade relations and uncertainties within the US banking and financial sectors.

The pan-European Stoxx Europe 600 index dropped 1.54%, or 8.69 points, ending at 562.91, while the banks sub-index fell 2.7%. Germany’s DAX 40 slipped 2.11% to 23,759.79, the UK’s FTSE 100 lost 1.52% to 9,292.5, France’s CAC 40 decreased 0.9% to 8,115.27, and Italy’s FTSE MIB 30 fell 2% to 41,530.84.

Global market uncertainty has been exacerbated by the ongoing US government shutdown stemming from budget disputes. Adding to concerns, regional US banks Zions Bancorp and Western Alliance reported fraud in certain loans, raising doubts about the health of their lending portfolios.

The selling pressure, concentrated in banking and financial stocks, also heightened investor risk aversion. The VIX, often called the "fear index" and measuring volatility in the S&P 500, climbed to 25.31, marking its highest point in nearly six months.

This cautious sentiment carried over into European markets, triggering a further decline in banking shares across the region. Notable losses included Germany’s Deutsche Bank down 5.6%, UK’s Barclays off 4.9%, Standard Chartered down 4.6%, France’s BNP Paribas dropping 3.3%, Societe Generale down 3.8%, and the Netherlands’ ING Groep falling 3%.

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