European stocks close lower as markets grapple with recession fears; Deutsche Bank down 12%

LONDON — European stocks closed lower Thursday, as mounting fears of an impending recession weighed on investor sentiment.

The pan-European Stoxx 600 closed 0.8% lower, with autos slumping 3.6% to lead the losses as most sectors and major bourses slipped into the red.

In terms of individual share price movement, Deutsche Bank and Commerzbank led a broad slump in bank shares, each slipping around 12%.

Aroundtown fell nearly 7% after JPMorgan downgraded the real estate company's stock to "underweight" and cut its target price.

Toward the top of the Stoxx 600, French IT company Atos jumped more than 6% after a French media report that the government would support a possible merger with compatriot aerospace firm Thales.

European stocks closed lower on Wednesday, reversing gains made in the previous sessions as global volatility continued and market sentiment shifted to a more negative setting amid fears over surging inflation and slowing economic growth.

U.S. stocks were mixed on Thursday as investors weighed the likelihood of a recession after comments from Federal Reserve chair Jerome Powell.

Powell told Congress on Wednesday that the central bank is "strongly committed" to bringing down inflation after the rate hit a 40-year high in the United States. He also noted that a recession is a "possibility" — a fear that has continued to weigh on Wall Street.

Meanwhile in Asia-Pacific markets overnight, sentiment was also mixed as investors continued to monitor recession concerns.

On the data front in Europe, flash estimates of French and German PMI (purchasing managers index) readings for June came in weaker than expected, adding to recession fears.

The German composite PMI, which captures manufacturing and services activity, dropped to 52.0 from May's 54.8, below a forecast of 54.0 by analysts in a Reuters poll. France's composite reading came in at 52.8, down from 57.0 in May.

The broader euro zone PMI also dropped markedly to 51.9 in June from 54.8 in May, with economists having forecast a reading of 53.9.

Thomas Rinn, global industrial lead at Accenture, said the weak readings demonstrated the "uphill battle" facing the euro zone manufacturing sector.

"Faced with challenges such as increasing material and energy costs, industrial companies in Europe continue to struggle with restricted revenues and operational challenges," Rinn said.

"Though there are signs of a recovery in order numbers, inflationary pressures look like they are here to stay, and European manufacturers should prepare accordingly."

Elsewhere, Norway's central bank announced a surprise 50-basis-point hike to its benchmark interest rate on Thursday, the country's largest single increase since 2002.

The move takes the policy rate from 0.75% to 1.25%, and Norges Bank Governor Ida Wolden Bache said in a statement that it will likely be raised to 1.5% in August.