By Ambar Warrick and Sagarika Jaisinghani
(Reuters) - European shares plunged 11.5% on Thursday, their worst daily loss on record, as responses by governments and central banks to combat the potential economic hit from the fast-spreading coronavirus got a cold welcome.
Airline stocks in particular took a major beating all day after the U.S restricted travel from Europe, while bank stocks were hard hit amid growing signs of corporate distress.
The absence of a rate cut from the European Central Bank gave little comfort to bank stocks, which dipped to record lows again.
The fast-spreading coronavirus, which the World Health Organisation termed as a pandemic, has spooked risky assets across the world wiping out more than $15 trillion in less than month.
The benchmark STOXX 600 index has been on a downward spiral since the outbreak, marking large daily losses while slipping further into bear territory. A shock crash in oil prices at the start of the week had also spurred heavy selling.
The index has now lost nearly a third of its value since mid-February. In another indication of market strife, the Euro STOXX Volatility Index, considered to be a fear gauge for markets, rose to its highest since the 2008 financial crisis.
(Graphic: V2TX versus STOXX 600 - https://fingfx.thomsonreuters.com/gfx/buzzifr/15/9089/9089/Pasted%20Image.jpg)
"For the moment we have to consider and we have to admit that we're staying in this rather turbulent market environment," said Philipp Brugger, head of investment strategy at Union Investment.
"We think the focus should really be on the provision of liquidity into the financial system, and on the solvency side of things."
Stocks in Italy, the European country most affected by the virus, ended nearly 17% lower, their worst session ever. The Italian government recently initiated a countrywide lockdown.
Bank stocks were the biggest drag on the Italian index. The bank-heavy Spanish index also shed 14%.
"The issue (for banks) isn't so much on the supply side for credit, but on the demand side between the virus, the oil shock. The message that the market is hearing is that the demand side of the economy is definitely going to slow down more," said Donald Calcagni, chief investment officer at wealth manager Mercer Advisors.
"What's it going to take to put a floor under this - we need to see new cases in Italy begin to level, to plateau, like in China."
Automobile and insurance stocks were the worst performing regional subindexes for the day, shedding more than 15% each.
Travel and leisure stocks ended down 13.2% as airlines Air France KLM, Lufthansa and British Airways-owner IAG (LON:ICAG) plummeted in wake of the travel restriction.
Lufthansa closed 14% lower, ending at a near eight-year low as the epidemic forced it to halt the sale of the international operations of its airline caterer LSG.
Norwegian oil equipment provider TGS NOPEC Geophysical Co was the sole gainer on the STOXX 600, rising about 1.2%.