Stock markets weighed down by bank concerns

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Uncertainty about a raft of key economic developments later this week, which culminates in Friday's closely watched U.S. nonfarm payrolls report for October, kept a lid on sentiment too.

"Stocks are registering hefty losses as the market takes risk off the table in the wake of another run of bad news from the banking sector," said Jane Foley, research director at Forex.com.

That raises fears that major economies "will only be able to manage lackluster growth going forward," Foley said.

In Europe, Britain's FTSE 100 index of leading British shares was down 106.52 points, or 2.1 per cent, at 4,997.98 while Germany's DAX fell 93.20 points, or 1.7 per cent, to 5.337,62.

The CAC-40 in France was 73.40 points, or 2 percent, lower at 3,566.06.

Most attention in Europe focused on the banks, particularly Lloyds Banking Group PLC and Royal Bank of Scotland PLC.

Royal Bank said that it was taking an additional 25 billion pounds from the government and joining the government's Asset Protection Scheme.

Meanwhile, Lloyds confirmed it was looking to raise at least 21 billion pounds ($34.2 billion) through a record share issue and debt swap, instead of joining the insurance scheme.

As a result, the pair faced differing reactions in the markets.

Lloyds was the top riser on the FTSE, up over 1 per cent, while Royal Bank of Scotland slid 4.5 per cent.