FTSEurofirst 300 falls 3.6 %

European shares fell sharply yesterday, led by financials such as UK mortgage bank HBOS, after US investment bank Lehman Brothers filed for bankruptcy protection.

The FTSEurofirst 300 index of top European shares fell 3.6 per cent to 1,119.94 points, its lowest close since July 16. Declining stocks led advancers by more than six to one. HBOS shares fell almost 18 per cent, with Fox-Pitt, Kelton analyst Leigh Goodwin citing the bank's sensitivity to the functioning of the interbank market.

UBS shares dropped almost 15 per cent yesterday after media reports that the Swiss bank will have to write down another $5 billion in the second half.

UBS said it had enough capital to face this and future market crises. Deutsche Bank, which said last week it will need to raise capital to finance its acquisition of a stake in Deutsche Postbank, fell 6.4 per cent.

ING cut its target price for the stock to €53.60 from €55.50, saying the need for fresh capital would keep Deutsche Bank's risk premium high.

Britain's FTSE fell 3.9 per cent, Germany's DAX lost 2.7 per cent and the French CAC 40 dropped 3.8 per cent.