Banks led European markets lower on Thursday on deepening worries of more losses in the second half of the year, as weak manufacturing data stoked fears of a US recession.

Financial stocks sagged after a report by Goldman Sachs predicted more writedowns, saying Swiss wealth manager UBS could face an earnings hit of SFr4bn (€2.5bn), mainly related to residual monoline exposure and structured debt products. UBS fell 3.7 per cent to SFr23.86.