NEW YORK — U.S. financial stocks were among the biggest decliners Tuesday, mimicking moves in Europe where fresh concerns about the European banking system raised questions about stability in the region.

Investors abroad were rattled when a report showed this summer's important European bank "stress tests" understated potential risk. Another report by Germany's banking association said the nation's biggest banks might need a massive infusion of capital to ward off financial problems.

Europe's markets slumped as investors fled risk and the fall continued in the U.S., with the financial sector leading a broad market decline. The KBW Bank Index was recently down 3%, and the KBW Regional Banking Index was off 2.5%. Potential problems with European banks could hurt their U.S. counterparts with large exposure to the region, fears that had been blamed for U.S. market declines earlier this summer.

While analysts were unconvinced the new worries from overseas would have any direct impact on U.S. banks, they said the stock declines were generally expected given some recent strength and general timidness in the market.

"My guess on what we have [with today's declines] is concern for a double-dip in the U.S. and ultimately in Europe," said Brad Hintz, an analyst at Sanford Bernstein.

Morgan Stanley was the worst performer losing 3.3% at $25.78, while Wells Fargo & Co. lost 3.1% at $25.06. JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. were all down between 1.4% and 2.3% each.

Regional banks also fell. KeyCorp declined 4.4% to $7.68; M&T Bank Corp. fell 4% to $85.39; and Marshall & Ilsley Corp. dropped 4.7% to $6.74.

Analysts pointed out that bank stocks might have been due for a breather after a run-up last week on strong economic data. The large banks remain up solidly for September as the S&P 500's financial sector is the third-best performer this month.

"I don't know if that's a catalyst as much an excuse to take some profits off the table," Steve Sosnick, equity risk manager at Interactive Brokers Group's Timber Hill LLC, said of European worries. "It doesn't strike me as a day where I want to read too much into the movements on a collective basis."

Sandler O'Neill analyst Jeffrey Harte said he isn't surprised by the drop given last week's rally, as the markets have been trading the banks almost like a "double-dip is a foregone conclusion." He said Europe is "perpetually" on the radar, but that he isn't more concerned about it today than he was last week.

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