Europe close: Banks drag equity benchmarks lower across the Continent

Bank stocks dragged European equity markets into the red on Tuesday as investors sifted through earnings reports from the sector and markets continued to digest the previous weeks stress tests.

The benchmark Stoxx 600 index finished down by 1.29% or 4.39 points to 335.47, Germany’s DAX was 1.80% weaker at 10,144.34 and France’s CAC 40 was off 1.84% to 4,327.99.

At the same time, oil prices continued to seep lower. West Texas Intermediate lost 1.3% to trade at $39.54 a barrel and Brent crude was down 0.983% to $41.73.

The Stoxx 600´s sub-index of lenders´ retreated 3.36% while another gauge tracking Oil&gas stocks gave back 1.63%.

"Scepticism at the rigour of recent stress tests has sent bank shares plummeting for a second day," said CMC Markets' Jasper Lawler.

Commerzbank added to the sector's woes, slumping after it scrapped its profit target for this year and said profit and net income will fall.

Meanwhile, Italy’s Banca Monte dei Paschi was also sharply lower, giving back the gains from the previous session after it approved a €5bn recapitalisation on Friday.

Deutsche Bank and Credit Suisse were also on the back foot as both banks face the prospect of being kicked out of the Euro Stoxx 50 index on 8 August.

Metro nudged down after the retailer’s third-quarter sales and profit missed analysts’ expectations.

Deutsche Lufthansa flew lower as it posted a jump in earnings for the first half but warned of a tougher second half.

German car maker BMW was in the red despite reporting better-than-expected second-quarter profit.

Chip maker Infineon Technologies lost ground after its third-quarter profit and sales fell short of estimates.

On the upside, InterContinental Hotels edged higher as it retained its bullish outlook for the year but said earnings in the first half were hit by the stronger US dollar.

In macroeconomic news, data from Eurostat showed producer prices in the eurozone were up 0.7% in June on the month versus economists’ expectations for a 0.4% increase and a 0.6% rise in May.

Eurostat said the 0.7% increase was driven by rises of 2.4% in the energy sector, 0.3% for intermediate goods and 0.1% for both capital goods and non-durable consumer goods.

Prices for durable consumer goods remained stabled, while prices in total industry excluding energy were up 0.2%.

On a year-on-year basis, prices were down 3.1%, which was less than the 3.5% drop economists had expected and the previous month’s 3.8%.