European stocks sink further as pandemic fears hit buying

(Reuters) - European shares ended at their lowest in nearly two months on Tuesday as concerns over a coronavirus pandemic roiled markets which had already marked enormous losses in the prior session.

The pan-European STOXX 600 index .STOXX ended 1.8% lower as the virus' spread to shores beyond China made investors swiftly reassess its potential economic impact. The STOXX has seen nearly $700 billion wiped off its value since Friday's close.

Hopes that the virus’ impact would be limited to China, and that any headwinds would be countered by central bank stimulus had seen markets scale record highs, despite warnings pointing to the contrary.

Banking .SX7P and insurance .SXIP shares led declines, as a rush for safety saw a drop in bond yields.

“Treasury yields were already below fair value... They’re going down because they provide some insurance from large equity market moves. But when yields fall, typically the prospects of profitability for banks also come down, said Andrea Cicione,” head of strategy at TS Lombard.

Germany's Commerzbank AG CBKG.DE was the worst performer on the bank index, closing about 5.8% lower, while insurers were bottomed out by Legal & General Group PLC LGEN.L.

Bucking the trend, albeit slightly, Prudential Plc PRU.L, ended marginally in the black after hedge fund Third Point LLC said it had amassed a more than $2 billion stake and called on the British insurer to split into two companies.

Among individual movers, German car parts maker Leoni LEOGn.D slumped 6% after reporting lower-than-expected core profits, while UK engineering firm Meggitt MGGT.L slid 5% after warning it would be hurt by the virus and Boeing's 737 MAX problems.

Sunglasses maker EssilorLuxottica ESLX.PA closed nearly 2% lower after EU antitrust regulators on Tuesday extended their investigation into the firm's 7.2 billion-euro ($7.8 billion) bid for Dutch opticians group GrandVision GVNV.AS by two weeks.

Euro zone data on Tuesday was also underwhelming, with figures showing German economic activity stagnated in the fourth quarter due to shrinking exports.

Germany's GDAXI .DAX fell 1.9%, while Italian shares .FTMIB added to Monday's decline with a 1.4% loss amid reports that major banks were curbing trips to the country as it plays host to Europe's biggest coronavirus outbreak.

Airline stocks, which took the biggest hit on Monday, also fell further, with Lufthansa LHAG.DE, EasyJet EZJ.L and Ryanair RYA.I ending between 1.5% to 3.6% lower.

Reporting by Ambar Warrick and Sruthi Shankar in Bengaluru; Editing by Sriraj Kalluvila, Patrick Graham and Angus MacSwan