(Bloomberg) -- European equities retreated at the open, led by the region’s biggest lenders, amid concerns about the Italian government’s clash with the European Union over the budget proposal.

The Stoxx Europe 600 Index fell 0.5 percent, while the Stoxx 600 Banks Index was down 1.2 percent. HSBC Holdings Plc dropped 0.9 percent, Banco Santander SA declined 1.8 percent and Intesa Sanpaolo lost 2.8 percent. Siemens dropped 2.5 percent after being cut to hold at HSBC.

The euro weakened as Italy’s populist government coalition’s deficit targets continue to weigh on the region’s markets and after the head of the nation’s lower house budget committee said that Italy could resolve its debt problems with its own currency. Sino-American tensions remain in focus after the Chinese navy dispelled an American missile destroyer from waters near South China Sea islands, in China’s account of the incident.

“For European investors Italy still matters very much. If the Italian bond spread widens further, this would put pressure on euro zone equities,” said Ulrich Urbahn, head of multi-asset strategy and research at Joh Berenberg Gossler & Co. KG in Frankfurt. “In the medium term, markets are eagerly awaiting the reporting season. I am not too optimistic after several profit earnings and as weaker” emerging-market currencies “could weigh on euro zone earnings,” he said.

To contact the reporter on this story: Ksenia Galouchko in London at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Jon Menon, Celeste Perri

©2018 Bloomberg L.P.

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