Eurofirst 300 index closes 1.3 per cent down

European shares closed lower yesterday as investors locked in profits after the benchmark index hit a four-month high in the previous session, with banks and energy stocks taking the most points off the index.

The pan-European FTSEurofirst 300 index of top shares closed 1.3 per cent lower at 854.56 points. The index is up about 32 per cent since hitting a record low in early March.

"What we have here is a bit of profit taking. Everything had got slightly over excited. Technically, equity markets have been overbought ... I suppose we have got a bit of a reality check kicking in," said Jim Wood-Smith, head of research at Williams de Broe. Banks were among the biggest fallers. Standard Chartered, Nordea Bank, Banco Santander and Societe Generale fell 0.5-6.8 per cent.

HSBC recovered from earlier falls to gain 0.1 per cent. Europe's biggest bank, said first-quarter profits were "well ahead" of last year, swelled by record results in its investment bank, but would have been down without accounting gains on its debt.