By Sruthi Shankar and Ambar Warrick
(Reuters) - European stocks plummeted amid widespread selling on Friday, as reports of a newly identified and possibly vaccine-resistant coronavirus variant stoked fears of a fresh hit to the global economy and drove investors out of riskier assets.
The benchmark STOXX 600 index ended 3.7% down in its worst session since June 2020, while the volatility gauge for the main stock market hit a near 10-month high.
The day's losses saw the STOXX 600 lose 4.5% this week.
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 4.8%. UK's FTSE 100 dropped 3.6%, while Germany's DAX fell 4.2% and Spain's IBEX lost 5.0%.
"With Europe and some northern parts of the U.S. in a stretched situation due to an already high number of new cases and hospitalisations, this new virus strain comes at the worst possible time," said Peter Garnry, head of equity strategy at Saxo Bank.
"Equities are reacting negatively because it is unknown at this point to what degree the vaccines will be effective against the new strain, and thus it increases risk of new lockdowns."
Among the European stock sectors, travel and leisure plummeted 8.8% in its worst day since the COVID-19 shock sell-off in March 2020.
Britain announced a temporary ban on flights from South Africa and several neighbouring countries from 1200 GMT on Friday. The European Union is also planning similar moves.
Travel stocks were the worst performers this week, down 13.6%. Concerns over rising COVID-19 cases had pulled European stock markets from record highs last week amid fears of more restrictions.
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 100% earlier this week.
Euro zone government bond yields dropped, pressuring European bank stocks, which lost 6.9%.
Oil & gas producers slumped 5.8%, while miners tumbled 5.0% as oil and metal prices lost ground as reports of the new virus variant fuelled economic slowdown worries. [O/R] [MET/L]
The technology sector had relatively smaller losses, thanks to gains in stay-at-home stocks. Defensives such as healthcare and utilities fell the least.