By Sruthi Shankar
A wave of selling hit European shares on Thursday amid investor fears of a prolonged economic downturn due to the coronavirus pandemic, driving euro zone banks to all-time lows at one point.
The pan-European STOXX 600 closed down 2.2% to hit its lowest level since April 22.
After recovering sharply from mid-March lows with help from massive stimulus actions, the STOXX 600 has shed about 4% in May on worries that the early easing of lockdowns by certain countries will cause a second wave of infections.
Those fears were further heightened by the U.S. Federal Reserve Chair Jerome Powell warning of a recession worse than any since World War Two and the World Health Organization saying that the coronavirus may never go away.
Retailers, food & beverage companies <.SX3P> and industrials led sectoral declines in Europe.
Euro STOXX 50 volatility index <.V2TX>, also known as the stock market fear gauge, touched its highest level since May 5.
"In the absence of positive fundamentals, equity markets can only be sustained by liquidity for a short period - eventually they need something nourishing to bite into," Societe Generale's Albert Edwards wrote in a client note.
Adding to market woes, U.S. President Donald Trump said he was very disappointed in China over its failure to contain the coronavirus, saying the pandemic cast a pall over his trade deal with Beijing.
Trade-sensitive automakers dropped 2.8% as Fiat Chrysler and Peugeot decided not to pay ordinary dividends for 2019.
Euro zone banks <.SX7E> closed down 0.7% after hitting a record low earlier in the session. The index is down nearly 50% this year as surging loan losses due to the pandemic and a dividend payment freeze hit stock prices.
"There's a risk that the dividend will not be reinstated for the current year," said Filippo Alloatti, senior credit analyst at Federated Hermes. "This is an important element for the equity story of eurozone banks. The sector is de facto ex-growth."
Graphic: euro zone banks - 
UK homebuilder Countryside Properties slumped 17.3% to the bottom of the STOXX 600 as the closure of its sites and sales offices battered half-year revenue and profit.
Portuguese retailer Jeronimo Martins tumbled 10.9% after it withdrew its forecast for 2020 due to the uncertainty stemming from the pandemic.
In contrast, pan-European exchange operator Euronext ga1ined 2.6% after reporting a 55% jump in quarterly revenue, partly driven by heavy trading in March that has propped up profits for some brokerages.
(Reporting by Sruthi Shankar in Bengaluru, graphics by Stefano Rebaudo in London; Editing by Patrick Graham, Anil D'Silva and Mark Heinrich)
