European shares end 2.9% lower on liquidity jitters

European shares suffered their biggest one-day percentage fall since February yesterday, fuelled by fears of a liquidity crisis stemming from problems in the US subprime mortgage market.

The pan-European FTSEurofirst 300 index unofficially closed down 2.86 per cent at 1,482.14 points, matching the one-day percentage drop on February 27, when global equities tumbled, sparked by a sell-off in Chinese markets.

Banking shares were among the worst hit with Barclays down 6.4 per cent, ABN AMRO down 3.5 per cent and Societe Generale down five per cent.

Mining stocks such as Rio Tinto and BHP Billiton slid more than six per cent amid falling metal prices as investors feared a possible credit crisis could affect the overall economy, hampering growth.

Britain's top share index tumbled nearly four per cent yesterday, its biggest fall in more than four years, as a lending squeeze that forced central banks to inject cash into the banking system spooked investors.

The FTSE 100 index closed down 3.7 per cent at 6,038.3 - its biggest one-day percentage fall since May 2003.

The US Federal Reserve intervened twice in one day, while the European Central Bank and the Bank of Japan among other central banks injected liquidity into banking systems yesterday.

Despite the additional cash, uncertainty about the scale of a possible US subprime fallout served a blow to stocks and especially financials, which have exposure to that market.

"As far as the FTSE is concerned, we walked in this morning and we knew it was going to be bad because of everything that had happened in the Asian markets overnight," said Neil Parker, market strategist at RBS.

"It's just a natural reaction to what have been some fairly freakish liquidity conditions. The central banks have got to grips with it in that they've made it very clear that they are the lenders of last resort."

HSBC, HBOS, Standard Chartered, Lloyds TSB, RBS and Barclays were down between 2.8 and 6.4 per cent. But the biggest loser was British mortgage bank Northern Rock which sank 9.6 per cent.

Man Group tumbled nine per cent after a source familiar with the plans said the world's largest listed hedge fund group would delay the public offering of one of its funds, and on weakness in financial markets.

Worries that a credit squeeze would hurt global economic growth and sap demand for commodities also weighed on metal and oil stocks.

Heavyweight BP fell 2.8 per cent and Royal Dutch Shell lost 3.3 per cent, as oil prices fell over $1 a barrel.

Lonmin was plunged 7.2 per cent, BHP Billiton lost a hefty 6.7 per cent and Rio Tinto lost 6.2 per cent.

Carnival, the world's largest cruise operator and British sugar and sweeteners maker Tate & Lyle were rare gainers.