European shares fall by a record 7.8%

European shares suffered their worst one-day percentage fall on record yesterday, sinking to four-year closing lows as investors dumped stocks across the board and Wall Street slid.

The pan-European FTSEurofirst 300 index fell 7.8 per cent to close at 1,004.90 points, worse than a 6.3-per cent fall on September 11, 2001, the day of the attacks on the World Trade Centre buildings in New York.

The index briefly slid below the 1,000 mark for the first time since late 2004 and the Dow Jones industrial average slipped below 10,000 points on Wall Street.

"It's just in free fall. The outlook is still very bearish and we are nowhere near the bottom. There is no reason to buy anything at the moment. The bid-offer spread is huge," said Nicole Elliott, a technical analyst with Mizuho Securities.

Banks and commodity shares took most points off the index, with Royal Bank of Scotland - which suffered a credit rating cut from Standard & Poor's - sliding 20 per cent, Barclays losing 14.7 per cent and UBS falling 12.8 per cent.

BP, Total and Royal Dutch Shell fell 7.7-8.9 per cent as oil fell below $90 a barrel to an eight-month low.

"People have decided that markets have no ability to repair themselves and politicians have control of this process," said John Haynes, strategist at Rensburg Sheppard Investment Management. "The buyers have stepped away, and the sellers are still there."

More European governments offered bank deposit guarantees, as regulators from Washington to Seoul scrambled to contain the deepest financial crisis in 80 years.

Germany said it was considering a nationwide "umbrella" to shield its banking sector from market turmoil, a reversal in policy which underscored growing government concerns about financial contagion.

Germany had pledged on Sunday to guarantee private deposit accounts, as it clinched a deal to rescue Hypo Real Estate.

But mortgage lender Hypo Real's shares lost 37 per cent.

Britain's FTSE ended 7.9 per cent lower, Germany's DAX lost 7.1 per cent and France's CAC slumped nine per cent.

The euro hit a fresh 13-month low against the dollar, while a slight fall in London interbank offered rates for three-month dollars provided a faint glimmer of hope that money market strains might be easing but conditions remained poor and lending virtually non-existent.