European shares down by 2.1%

European shares slid for a fourth day yesterday, ending steeply lower despite an early rally as bank and oil shares slipped and fears of a global recession hit investors on both sides of the Atlantic.

The FTSEurofirst 300 index of top European shares closed down 2.1 per cent at 921.46 points, its lowest close since November 2003.

The index has shed more than 15 per cent so far this week, placing it on track for its worst week on record. European shares are down 38.8 per cent so far this year, hit by a credit crisis that has frozen interbank lending, pushed banks deep into the red and slowed the economy, hitting several industrial sectors.

Banks reversed earlier gains to track US peers which fell on persistent fears that the widening credit crisis will tip the global economy into recession. The drop in financials also followed the expiration of a US ban on short selling.

In Europe Barclays shed 13.1 per cent and Santander dropped 3.3 per cent. On the upside, battered HBOS shares surged 31.2 per cent.

Oil shares tracked crude prices lower, reversing an earlier rally. BP lost 1.8 per cent, Royal Dutch Shell lost 3.2 per cent and Total went down 3.2 per cent.

European shares had rallied for most of the day as the previous session's concerted global rate cut and UK bank bailout had offered brief respite to investors fearing global recession.

The UK's FTSE 100 index ended down 1.2 per cent, Germany's DAX index fell 2.5 per cent and France's CAC 40 dropped 1.6 per cent.

"The fear doing the rounds in the market is that the bailouts... even though they are enormous in their scope and size, may not be enough," said Jeremy Batstone-Carr, head of private client research at Charles Stanley in London.

"It's been the most extraordinary five weeks that anybody in the market can remember," he added. "We're hiding in our trenches with our tin hats and bicycle clips on."

Underlining the severity of the problem, the cost of borrowing overnight dollars remained significantly above the Federal Reserve's new target rate, reflecting financial institutions' demand.

Three-month borrowing on interbank markets remained expensive near this week's highs across all currencies and actual lending beyond a week remained frozen.

On top of slashing interest rates, the European Central Bank also halved the premium banks pay for emergency borrowing over its main refinancing rate.

The ECB also said it was raising the rate it would pay banks which deposited excess funds with it overnight, to 50 basis points below its main rate from 100 basis points below it.