European debt woes on Thursday weighed heavily on bank stocks, which closed lower even after recovering from a sharp free fall earlier in the session.

The KBW Bank Index fell 4.53%, to 52.50, after dropping as far as 10% at one point as investors worried that the debt problems in Greece could spread to other European nations. Moody's Investors Service warned that the fiscal crisis could threaten banks in Britain, Portugal, Spain, Ireland and Italy.

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