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European shares set for worst sell-off in a year as virus scare grips

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(Reuters) -European stocks were set for their worst session in more than year on Friday, as reports of a newly identified and possibly vaccine-resistant coronavirus variant stoked fears of a fresh hit to global economy and drove investors out of riskier assets.

The benchmark STOXX 600 index was down 2.5%. It had slid as much as 3.6% in early trading, while the volatility gauge for the main stock market hit its highest in nearly 10 months.

Little is known of the variant detected in South Africa, Botswana and Hong Kong, but scientists said it has an unusual combination of mutations and may be able to evade immune responses or make it more transmissible.

France’s CAC 40 shed 3.3%, leading regional markets lower as shares in planemaker Airbus, shopping center operator Unibail and Safran (PA:SAF) fell about 10% each.

UK’s FTSE 100 dropped 2.6%, while Germany’s DAX fell 2.7% and Spain’s IBEX lost 3.4%.

Cyclical-heavy European stock markets have already been under stress this week as a resurgence in COVID-19 cases prompted new restrictions in several countries.

“While COVID still has an impact on market sentiment, it is not the dominant driver it was a year ago. Political and economic agendas have more breadth,” said Emma Wall, head of investment analysis at Hargreaves Lansdown (LON:HRGV).

“That said, should we have a difficult winter with returned restrictions expect to see those stock sectors which were most vulnerable before wobble – retail, leisure, entertainment and travel.”

Travel & leisure stocks were down 3.9% after falling as much as 7% after Britain announced a temporary ban on flights from South Africa and several neighbouring countries from 1200 GMT on Friday. European Union is also planning similar moves.

Shares in British Airways owner IAG (LON:ICAG) and easyJet (LON:EZJ), cruise operator Carnival (NYSE:CUK) and travel company TUI fell between 9% and 10%.

Oil & gas producers dropped 4.3%, while miners tumbled 3.5% as oil and metal prices lost ground as reports of the new virus variant fuelled economic slowdown worries. [O/R] [MET/L]

Tracking falls in bond yields, the banking index dropped 4.4%, while some stay-at-home stocks including Delivery Hero and Just Eat rose about 3%.

The virus scare prompted euro zone money markets to scale back bets of a rate hike from the European Central Bank next year. Odds of a 10 basis point rate hike in December 2022 almost halved from a full 100% earlier this week.

New York’s S&P 500 futures dropped 1.5%, with trading likely thinned by the U.S. Thanksgiving holiday on Thursday and a shortened trading session on Friday.

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