European stock markets diverged Thursday after Switzerland's central bank scrapped a policy to artificially hold down the value of the Swiss franc against the euro, sending the franc soaring.
The Swiss franc, seen as a haven investment, soared 29 percent against the European single currency after the central bank said it was ending an action plan lasting three years.
The euro also tumbled to an 11-year low against the dollar, with the single currency hampered by the prospect of fresh stimulus from the European Central Bank to tackle deflation threats.
The franc, which bought a euro for 1.2010 late on Wednesday, reached 0.8517 Thursday. That was a record high and the first time that the franc had gone beyond parity with the euro since the birth of the single currency in 1999. It later lost steam to trade at 1.0268 francs against the euro.
"The sudden abandonment of the floor by the Swiss central bank has sent the markets into a tailspin," said David Madden, market analyst at traders IG.
"Equity markets have been shaken out by the Swiss move, and dealers are seeking the safety of the US dollar."
Swiss stocks plunged 12 percent to 8,093.81 points.
"The Swiss National Bank is discontinuing the minimum exchange rate of 1.20 francs per euro," the bank said in a statement.
SNB had since September 2011 been defending the exchange rate floor in a bid to protect the country's vital export industry.
The floor was introduced as the eurozone crisis sent investors scurrying to the safe haven currency. The Russian ruble crisis has also recently put pressure on the franc.
The central bank also announced Thursday that it further slashing its interest rate by 0.5 percentage points on certain bank deposits to negative 0.75 percent.
"The shock move by the SNB today has resulted in fresh risk aversion in the major equity markets," said Neil MacKinnon, an economist at VTB Capital.
"The short term outlook is likely to see an increase in volatility which has been exacerbated by the declines in oil and other commodity prices and uncertainties over the global economic outlook."
Europe's indices had fallen sharply on Wednesday, with London slumping 2.35 percent, as deflation fears swept across the region. Tumbling commodity prices had also put pressure on miners and energy companies, sending their shares crashing. Both sectors were steadier in Thursday trading.
Overall, London's benchmark FTSE 100 index was down 0.62 percent at 6,348.75 points compared with Wednesday's close.
Frankfurt's DAX 30 climbed 0.30 percent to 9,846.44 points and the CAC 40 in Paris lost 0.22 percent in value to 4,214.13.
The euro slid to an 11-year low against the dollar at $1.1575. It later recovered to $1.1718, still down from $1.1782 on Wednesday.