Europe close: Most markets lower as Brexit fears resurface

European stocks fell on Tuesday as Brexit fallout reared its ugly head again, as investors digested the release of the Bank of England’s Financial Stability Report.

The benchmark Stoxx Europe 600 index was down 1.66%, France’s CAC 40 was off 1.68% and Germany’s DAX was 1.86% weaker.

In London, the FTSE 100 reversed earlier losses to trade up 0.35% following the release of the Financial Stability Report.

The BoE loosened its requirements for UK banks to hold extra capital and warned that risks from the country's Brexit vote had already started to "crystallise".

In its twice-yearly report, the BoE was seeking to encourage banks to keep lending by trimming the countercyclical capital buffer rate to 0% from 0.5% with immediate effect and until at least June 2017.

It said the cuts to capital buffers will raise banks’ capacity for lending to UK households and businesses by up to £150bn.

The BoE, which in March had said the capital buffer would rise to 0.5%, stressed it expects banks not to increase dividends and other payments, such as bonuses, as a result of the reduced capital buffer.

In currency markets, sterling fell to a fresh 31-year low against the US dollar – hitting $1.3114 intraday – amid ongoing concerns about the fallout from Brexit and after data showed UK services expansion weakened in June to match the 38-year low reached in April, amid a darkening outlook.

It was last even weaker, moving 1.89% lower to $1.3036 per £1.

The Markit/CIPS UK services purchasing managers’ index fell to 52.3 from 53.5 in May, missing economists’ expectations for a reading of 52.7. Still, sterling pared losses following the release of the FSR.

In oil markets, West Texas Intermediate was last down 4.6% at $46.77 a barrel and Brent crude was off 4.51% at $47.94.

In European corporate news, Italian banks were under pressure again, with Banca Monte dei Paschi di Siena sharply lower amid reports Italy is considering a capital plan for the bank that includes selling new convertible bonds to the government and injecting at least €3bn.

Housebuilder Persimmon was under the cosh despite reporting strong first-half trading, as it said it was too early to judge the impact of Brexit.

Budget airline Ryanair flew higher after reporting a 11% increase in traffic in June.

Eurozone data releases were also in focus on Tuesday. The eurozone services sector recorded a better than expected performance in June, according to purchasing managers’ index (PMI) data from Markit, though a final reading of the composite index indicated the eurozone endured its weakest second quarter of growth since the end of 2014.

June's services PMI reading rose to 52.8, besting the 52.4 from May and also the consensus forecast that this would be repeated for a second month.

The final reading of the Composite PMI June came out at 53.1, up from the flash reading of 52.8 and flat on the previous month.

This indicated that gross domestic product of the eurozone will have slowed to 0.3% in the second quarter.

Elsewhere, figures from Eurostat showed retail sales in the 19 countries that share the euro rose 0.4% in May. This was in line with economists’ expectations and marked the biggest monthly increase this year. Meanwhile, April’s flat reading was revised up to show a 0.2% increase.

The growth in sales was led by increased purchases of non-food products such as textiles and medical goods, which were up 0.7% on the month. Sales of food, drink and tobacco were flat.

On the year, eurozone retail sales rose 1.6%, also in line with expectations.