LONDON (Reuters) - Shares in French banks fell sharply on Thursday on persistent worries about their outlook, dragging down an index of European bank stocks, which has lost almost 30 percent this year.
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Bank of America-Merrill Lynch cut the sector to "neutral" from "overweight."
"Having hung on to a value argument for the banks sector year-to-date, our latest downgrade to global growth expectations makes its difficult to sustain conviction in this argument and we lower our sector weighting to neutral," Merrill strategists said in a note.
The banking sector has lost more than 29 percent so far this year, the second worst performing segment in Europe, on concerns over the currency bloc's debt crisis and a deteriorating outlook for global growth.
The slide has pushed banks' valuations to the lowest among all 18 STOXX Europe 600 <.STOXX> sectors. European banks carried a 12-month forward price-to-earnings of 7.1 times, versus a 10-year average of 10.9, according to data from Thomson Reuters Datastream.
The FTSEurofirst index of leading European shares <.FTEU3> was flat on the day at 910.49 after trading as low as 905.07.
(Reporting by Dominic Lau, editing by Nigel Stephenson)