European stocks declined for a second consecutive day on Thursday, with the selloff in banking shares continuing, reflecting heightened investor concerns about France's fiscal position and rising oil prices.

The Stoxx Europe 600 index closed 0.8% lower. Bank stocks dropped 2% to their lowest level since June and posted their biggest two-day decline since March. Healthcare and automotive sectors led the losses.

The UK's FTSE 100 index performed relatively better, recovering earlier losses to close roughly flat.

Financial stocks have been the primary driver of gains in European benchmark indices this year, but as pressure in the government bond market intensifies, they are now shifting from leading to lagging.

Societe Generale has fallen 26% from its August high, while Deutsche Bank is down 17% from its high last month.

Alexandre Baradez, chief market analyst at IG in Paris, said: "European bank stocks are under pressure because the macroeconomic risks posed by rising oil prices and yields may have been overlooked previously."

France's fiscal and political turmoil has further exacerbated the pressure. The yield premium investors demand for holding French sovereign debt over German bunds has more than doubled since late May. Although below last week's peak, the spread currently stands at 140 basis points.

Oil is another challenge facing the region. After reports that US President Trump may order a strike on Iran before the midterm elections, Brent crude prices climbed back above $105 per barrel.

France's CAC 40 index fell 0.5%. David Kruk, head of trading at La Financiere de l'Echiquier in Paris, said the overall market trend is currently unfavorable for France. He said: "Momentum-based commodity trading advisors are continuously flooding into the hardest-hit areas without really looking at individual stock situations, and no one is willing to stand in their way right now."

Among individual stocks, biotech company Argenx SE plunged 16% after terminating a Phase 3 clinical trial for a Sjogren's syndrome drug. Tesco rose 5.2%, with analysts citing strong first-half results and noting that its share buyback program was increased by 200 million pounds ($264 million).