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By Carla Mozee, Sara Sjolin and Barbara Kollmeyer, MarketWatch

Reports of hedge funds yanking billions of dollars from Germany's biggest lender

European stock markets on Friday erased earlier sharp losses and closed slightly higher as concerns over Deutsche Bank's financial health subsided on hopes the lender will pay a lower-than-feared fine to U.S. regulators.

The Stoxx Europe 600 index rose 0.1% to close at 342.92, after trading with a loss of as much as 1.7% earlier in the session.

The steep drops at the open came as fears mounted that the troubles at Deutsche Bank AG (DBK.XE) (DBK.XE) (DBK.XE)--Germany's largest lender--would spread to the global financial markets. Shares of the bank slid below EUR10 for the first time ever in the morning after reports late Thursday that hedge funds had started to pull money out of the financial major (http://www.marketwatch.com/story/deutsche-bank-shares-tumble-after-report-says-some-clients-reduce-collateral-on-trades-2016-09-29).

Deutsche Bank's CEO John Cryan tried to calm frayed nerves (http://www.marketwatch.com/story/deutsche-bank-ceo-blames-market-forces-for-crisis-in-letter-to-employees-2016-09-30) over the bank's outlook, saying there "are some market forces that want to weaken this confidence in us," in a letter sent to staff on Friday.

(http://www.marketwatch.com/story/fearful-clients-pull-billions-of-dollars-out-of-deutsche-bank-2016-09-30)"What must be understood here is that Deutsche Bank is the main clearing house for trades in Europe," David Buik, market commentator at Panmure Gordon & Co., said in a note to clients Friday. "With over $60 trillion derivative book at the Deutsche Bank, the government is totally incapable of even understanding how to deal with this crisis."

Read:Deutsche Bank crisis threatens to roil global markets (http://www.marketwatch.com/story/a-crisis-in-european-banks-threatens-to-roil-global-markets-2016-09-28)

The woes for Deutsche Bank started earlier in the September when the U.S. Justice Department demanded the lender pays $14 billion to settle claims it sold toxic mortgage-backed securities in the run-up to the financial crisis. The amount sparked fears the bank would need to raise fresh capital to cover the litigation costs as the figure is well above its current settlement reserves.

Friday afternoon, however, the dark clouds hovering over the bank abated somewhat after J.P. Morgan Chase & Co. in a report estimated the fine by Justice Department will be about $5.4 billion. Additionally, Eurogroup chief Jeroen Dijsselbloem warned the bank would, in any case, have to survive without state aid.

"What a day! What a week! Despite, or perhaps because of, Jeroen Dijsselbloem coming out to state that Deutsche Bank won't receive state aid the German giant has managed to claw its way back into the green this afternoon," said Connor Campbell, financial analyst at Spreadex, in a note.

"One could argue that the comments from Dijsselbloem prove that the financial health of Deutsche Bank isn't as bad as suspected. For if it the financial firm was on its last legs there is no way the eurozone chiefs wouldn't find a way of preventing the collapse of the region's biggest lender," he added.

Deutsche Bank shares closed 6.4% higher at EUR11.57.

Bouncy banks: The Deutsche Bank woes initially weighed on other European banks, but the turnaround also rubbed off on the sector into the close.

The Stoxx Europe 600 Bank Index ended up 0.6%, extending its quarterly gain to 12%.

France's Credit Agricole SA (ACA.FR) rose 1% and UBS Group AG (UBS) climbed 1.5%.

The national benchmarks also switched from losses to gains. Germany's DAX 30 ended up 1% at 10,511.02, while France's CAC 40 index gained 0.1% to 4,448.26.

The FTSE 100 slipped 0.3% to 6,899.33, but still managed to log its biggest quarterly gain in more than three years (http://www.marketwatch.com/story/uk-stocks-turn-brexit-into-boost-on-track-for-best-quarter-since-2013-2016-09-29).

Meanwhile, the euro (http://www.marketwatch.com/story/euro-slumps-to-one-week-low-as-deutsche-bank-fears-mount-2016-09-30) rose to $1.1235, from $1.1223 late Thursday in New York.

Other movers: Telefónica SA (TEF) shed 4% after the Spanish telecommunications company on Thursday canceled a planned initial public offering of its Telxius infrastructure business because of tepid investor demand.

Airbus Group SE (AIR.FR) rose 1%, with the aerospace heavyweight set to cut (http://www.marketwatch.com/story/airbus-to-cut-management-jobs-in-internal-merger-2016-09-30) an unspecified number of management jobs as part of a restructuring plan.

Shares of Hennes & Mauritz AB (HM-B.SK), better known as H&M, fell 2.9%. The Swedish fashion retailer said quarterly net profit (http://www.marketwatch.com/story/hm-earnings-hurt-by-hot-weather-stronger-dollar-2016-09-30) was 4.82 billion Swedish kronor ($562 million), and analysts polled by FactSet had expected net profit of 4.9 billion kronor.

(END) Dow Jones Newswires

September 30, 2016 12:36 ET (16:36 GMT)

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