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Service was restored to most customers later.
The lack of price visibility was blamed for accelerating a sell-off in European shares, while trading volumes in German government bond futures contracts fell by around a third.
Social media first reported the Bloomberg systems going down at around 0720 GMT and the screens were blank for most of the following two hours, market participants said, adding that prices were unavailable and the news feed intermittent.
It was unclear what caused the outage on the system that provides real-time news and financial information to more than 320,000 subscribers globally and allows users to trade across asset classes. The impact was widely felt.
Bloomberg News, which has 2,400 reporters and editors in more than 150 bureaus worldwide, competes with Thomson Reuters Corp in providing financial news and information.
"There were frantic scenes on the markets this morning," said Connor Campbell, a financial analyst at spread betting firm Spreadex.
In a statement, Bloomberg said: "Significant but not all parts of our system experienced a disruption today. There is no indication at this point that this is anything other than an internal network issue. We have restored service to most customers and are making progress in bringing all parts of the system back online."
UNPRECEDENTED
Britain's Debt Management Office had planned a regular sale of 3 billion pounds of treasury bills on Friday morning. The tender was rescheduled for 1130-1330 GMT on Friday.
The DMO said the postponement would not cause any funding issues for the UK Treasury. A spokesman said he could not recall the agency ever having to postpone a sale in similar circumstances.
The Bank of England said its core operations were not affected and that it had "all the tools it needs to carry out its responsibilities for financial stability, and provision of market liquidity, if and as required."
In a statement, Britain's financial market regulator The Financial Conduct Authority said: "We are aware of the issue and are monitoring the impact on our firms."
Traders said the length of time the Bloomberg screens were down was unprecedented.
The volume of trading in German Bund futures between 0700 and 0900 GMT was down by around a third compared with the same period in the last few Friday trading sessions.
In that two-hour period, 62,845 lots of Bund futures were traded, according to Eurex data. That compares with 96,301 contracts a week ago, 89,048 on March 27 and 88,476 on March 20.
"It has created a lot of disruption, because there's lack of visibility," ADM Investor Services strategist Marc Ostwald said.
"While Friday is not generally a huge day for corporate issuance, everything's been put on hold because of it."
Bankers told Thomson Reuters market news service IFR that at least one corporate bond sale worth over 1 billion euros had been delayed because of the outage.
Traders said the outage had exacerbated volatile activity on stock markets, particularly around the expiration of options contracts. It also hindered the ability of traders to react to the announcement of new Chinese regulations.
"A lot of people use Bloomberg EMSX to route orders out, so there might have been loads of people wanting to react to the news but couldn't as they couldn't put their sales into the market," said Mark Ward, head of trading at Sanlam.
At 1225 GMT the leading index of Europe's top 300 shares was down 1.6 percent.
