European shares lost more than 2 per cent on Friday after a shock fall in US non-farm jobs sparked fears of a recession in the world's biggest economy.
The pan-European FTSEurofirst 300 share index ended 2.15 per cent lower at 1,494.88 points after US data showed that payrolls contracted in August for the first time in four years, confounding expectations for an increase of 110,000 jobs.
The index's fall was the biggest daily drop in three weeks and represented only the third down day since the US Federal Reserve cut its discount rate on August 17 to boost liquidity.
European shares have eked out a gain of less than 1 per cent this year to date, having fallen 8.6 percent since hitting a 6-1/2 year peak in mid-July as investors fretted that a crisis in the US subprime, or risky, mortgage market would spread to the wider economy.
Analysts said the non-farm payrolls showed that investors' fears had been realised, though the prospect of an equities-friendly rate cut had also gone up as a result.
"Whatever excuses you want to make about non-farm payrolls being volatile, there is no escaping the fact that the August release was downright awful," ING economist Rob Carnell said in a note.
"For those wishing to see some evidence of the impact of sub-prime on the broader macro economy -- look no further!" he said, adding that the chances of a 50-basis-point cut in US interest rates at the Federal Reserve's meeting on September 18 had received a massive boost.
Banks were the biggest negative weight on the index, led by Commerzbank, which fell 5 per cent on fears that a unit had been hit by subprime exposure. A Commerzbank spokesman said that the unit, Essenhyp, was not engaged in the subprime market.
French lender Societe Generale fell 4.4 per cent on market talk that it was preparing investors for a profit warning. SocGen declined comment.
Overnight interbank lending rates have risen sharply over the past couple of months as banks became hesitant to lend to each other, fearing subprime exposure. They eased due to technical reasons at the end of the week but one- and three-month rates remained high.
Spreads on corporate hybrid bonds, instruments that combine features of debt and equity, widened on Friday.
Other major losers among banks included Italy's UniCredit, which fell 4.2 per cent after Capitalia, a rival it has agreed to buy, reported a fall in first-half profit. Capitalia stock fell 4.6 per cent.
BNP Paribas fell 3.4 per cent, Barclays 4.2 per cent and Royal Bank of Scotland 4.7 per cent.
Real estate companies slid, with Unibail Rodamco falling 6 per cent and British Land falling 5 per cent, and job firms Randstad, Adecco and Vedior suffered as investors viewed a slowing economy as especially bad for them. Randstad lost 7.3 per cent.
Commodities give way
The jobs report also deflated the oil price, which took with it heavyweight oil stocks. BP fell 0.9 per cent, Royal Dutch Shell slipped 1.6 percent and Total 2.3 per cent.
Miners, which had held up well through the early part of the day, also ended deep in the red, with bid talk around Rio Tinto ultimately failing to rescue the stock from a 3.3 per cent fall.
Rio has declined to comment on talk that rival BHP Billiton and Brazil's CVRD are planning a joint bid.
Around Europe, Britain's FTSE 100 ended 1.9 percent lower, France's CAC 40 lost 2.6 per cent and Germany's DAX lost 2.4 per cent.
AXA Investment Managers strategist Franz Wenzel said markets would continue to remain volatile for the rest of the year.
"Shares should go up over the next six months but it's going to be a rollercoaster ride. Real estate, subprime, employment data is going to be studied closely, and there's going to be a tussle between attractive equities valuations and a shaky macro environment," he said.