NEW YORK  - US and European stock markets retreated on last day of the week, as banking shares led by Deutsche Bank slumped on news US authorities were hunting down Germany's biggest lender over a record fine.

Frankfurt's DAX 30 was the hardest hit, closing down 1.5 percent, while the Paris CAC 40 shed nearly 1.0 percent from Thursday.

London's benchmark FTSE 100 index lost 0.3 percent, while the S&P 500 in the US shed 0.4 percent.

The US Justice Department is seeking up to $14 billion (12.5 billion euros) from Deutsche Bank to resolve allegations stemming from the sale of mortgage securities in the 2008 crisis, the German financial giant confirmed.

It added that the DoJ had invited the bank to submit a counter offer, and said it expected to reach a "materially lower" figure in negotiations.

But the news hammered Deutsche Bank shares, which sank 8.5 percent to close at 11.99 euros in Frankfurt.

The US action was also felt across Europe's banking sector, with shares in Royal Bank of Scotland in London shedding 4.4 percent, and in Paris, French lender Societe Generale slid 2.7 percent.

The Deutsche enforcement comes as European banks already faced a tough profit outlook due to ultra-low and negative interest rates.

Banking shares were also among the weak points on Wall Street. Wells Fargo dropped 1.6 percent after the House Financial Services Committee became the latest entity to announce an investigation into allegations that the huge US bank fraudulently opened millions of unauthorized customer accounts. The panel plans hearings this month.

Citigroup lost 1.4 percent following a downgrade by Goldman Sachs.

- Fed to keep rate unchanged-

Asian stock markets meanwhile rallied Friday on doused expectations of a Federal Reserve interest rate hike next week after another round of below-par US data.

Equities globally have suffered during a volatile week as top Fed officials gave conflicting views on the need for tighter monetary policy, fueling uncertainty across trading floors.

But the chances of a move at the Fed policy meeting have fallen late this week with lackluster US data on retail sales and consumer prices.

In Asia, where trade was thin due to public holidays, Tokyo ended 0.7 percent higher, while Sydney jumped one percent, Singapore also added 0.7 percent and Wellington climbed 0.8 percent.

Shanghai, Hong Kong, Seoul, Kuala Lumpur and Taipei were shut.

"With nothing in the economic numbers to say US rates should be moving up, and growing signs of losing momentum, expectations have largely diminished toward the Fed doing anything in September," said ANZ Bank New Zealand chief economist Cameron Bagrie.

"The market is drifting back toward the view they might do nothing for quite a while," he wrote in a note.

Also on traders' radar next week will be the Bank of Japan's own policy meeting amid reports that it is planning to cut interest rates further into negative territory.a