A lack of agreement over the future of banking supervision within Europe, uncertainty over whether Spain will request assistance from the European Central Bank (ECB), reduced growth prospects in China and rising tensions between Japan and China all served to push European stocks lower on Friday.

EU finance ministers failed to agree to changes to the powers of the European Central Bank at a meeting in Cyprus at the end of last week. This was seen as an important step in helping to avoid catastrophic losses within the Spanish and Irish banking sectors, as it would clear the way for the direct recapitalisation of these countries´ banks.

In addition, Spain has yet to make a formal request for assistance from the European Central Bank. The move, which would see the ECB enter the secondary market to keep down the cost of borrowing for the Eurozone's fourth largest economy, would also entail strict budget conditions that the Spanish government is loathe to accept.

Investors have been expecting Spain to bite the bullet for several weeks but Madrid has so far resisted the political and economic pressure to press the emergency help button.

News out of China further darkened the mood with Citigroup cuttings its growth forecast for the world's second largest economy from 8% to 7.6%. The official Xinhua Chinese news agency also carried a warning that the recent announcement by the US that it would begin a third round of quantitative easing might have inflationary consequences.

Companies

The weakest sector on the Stoxx Europe 600 was basic resources, which fell 1.4%, the strongest was food & beverage which gained 0.24%.

Amongst the most troubled stocks were two of the big steel companies ThyssenKrupp which fell on a downgrade from UBS and Swedish outfit SSAB which reported lower demand for "strip" products.

Fashion retailer H&M slipped after claiming the heat wave in southern Europe this August dented sales.

The world's biggest maker of wind turbines, Vestas Wind Systems rose sharply on growing expectations of a tie up with Japanese firm Mitsubishi heavy industries. Japan has announced it will phase out nuclear power in the wake of the Fukushima nuclear disaster.



BS

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