European shares slip sharply

European shares closed sharply lower yesterday, with banks taking most points off the index as investors gave the thumbs down to Bank of America results marked by an increase in troubled loans.

The FTSEurofirst 300 index of top European shares closed 3.5 per cent lower at 786.12 points, the biggest daily percentage drop since March 30. The index has fallen 5.5 per cent so far this year, but is up nearly 22 per cent since reaching a record low on March 9.

Across Europe the FTSE 100 index was down 2.5 per cent, Germany's DAX was down 4.1 per cent and France's CAC 40 fell four per cent.

"This (the slump) is just a logical consequence of what happened over the last six weeks, in which the market has constantly gained," said Philippe Gijsels, senior equity strategist at Fortis.

"This could be the end of the bear market rally," he added.

Banks took the most points off the index, with BNP Paribas, Deutsche Bank and Barclays all down between 6.6 and 8.6 per cent.

The DJ STOXX Banks Index was down 5.5 per cent.

Bank of America Corp said on Monday its acquisition of Merrill Lynch & Co helped quarterly profit but results included a big increase in troubled loans, sending the company's shares tumbling.

Insurers also fell with Allianz, Aviva, AXA and Prudential down between 4.3 and 8.4 per cent.

"It's been quite a good bounce from the lows," said Philip Lawlor, strategist at Nomura in London.

"A bit of a pullback on a given day isn't a big surprise," he said. "You can't expect the market to go on gaining at that (26 per cent) rate.