By Ankika Biswas and Sruthi Shankar

(Reuters) -European stocks were flat on Tuesday after struggling for direction amid lingering fears of a deeper crisis brought on by the collapse of Credit Suisse and two U.S. banks.

The continent-wide STOXX 600 index closed flat, after rising as much as 0.8% during the day.

The European Central Bank’s top supervisor was concerned that the recent selloff in Deutsche Bank shares last week showed investors were on edge and could be spooked by moves in the small market for credit default swaps (CDS).

The German bank dropped nearly 2% on Tuesday, following a near 9% drop last week after its cost of insuring debt against default risk jumped to an over four-year high.

“Question is now how much is renewed recession fear going to be a bigger worry on the (banking) sector than it has been,” said Chris Beauchamp, chief market analyst at IG Group.

While the European banks index edged up 0.7% on Tuesday, paring much of its gains, it was on track for its worst monthly showing since March 2020, when financial markets were roiled by pandemic fears.

Swiss bank UBS climbed 1.7% after CEO Ralph Hamers said the bank saw its government-orchestrated takeover of Credit Suisse as a growth opportunity, in an internal memo seen by Reuters. Credit Suisse shares rose 0.7%.

On the other hand, the STOXX 600 is set to end the March quarter with a near 5% gain on signs of economic resilience and hopes that major central banks were nearing the end of their monetary tightening cycles.

Meanwhile, real estate stocks took the hardest hit and slid 2.7%, touching a five-and-a-half-month low.

Worries have surfaced that commercial property could be the next shoe to drop if problems in global banking markets trigger a broader credit crunch for the multi-trillion-dollar sector, with Citigroup on Monday warning the potential downside for the sector could exceed 50%.

Meanwhile, energy stocks jumped 1.9% tracking higher oil prices [O/R].

BP also gained 2.3% on joint offer with Abu Dhabi’s state oil giant to acquire 50% of Israeli offshore natural gas producer NewMed Energy.

Among specific stocks, Germany’s Aroundtown slumped 10.2% to a record low ahead of its results on Wednesday.

IT services and consulting firm Softcat jumped 5.5%, among the top gainers on STOXX 600, on an upbeat annual outlook.

Telecom Italia added 2.5% after Bloomberg News reported that Italy’s state-backed lender was working on a higher bid for the company’s landline network.

Embracer tumbled 13.4% to the bottom of STOXX 600 after the Swedish gaming group pushed back dates for expected completion of several deals announced last year.

(Reporting by Sruthi Shankar and Ankika Biswas in Bengaluru; Editing by Sonia Cheema, Subhranshu Sahu and Angus MacSwan)

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