European shares fall 2.8% to a two-month closing low

European shares fell by the most in 10 weeks yesterday, with Spanish Santander leading a fall in banks, hurt by worries about eurozone peripheral countries, and after US jobless claims unexpectedly rose.

The pan-European FTSEurofirst 300 index of top shares fell 2.8 per cent to 992.96 points, its lowest close since November 30 and its biggest one-day percentage fall in 10 weeks.

A raft of companies reported results, many of which beat expectations but still saw their shares fall. Banco Santander, the eurozone's biggest bank, ended the day 9.4 per cent lower, despite reporting robust full-year profit. Traders pointed to concerns over the outlook for crisis-hit Spain and worries the bank is not doing enough to address its property exposure despite results beating forecasts.

Deutsche Bank fell 4.2 per cent despite beating market forecasts by swinging to a fourth quarter net profit of €1.3 billion ($1.8 billion).

Other banks to fall included BBVA, Barclays, Credit Suisse, HSBC and Lloyds Banking, down 3.7-7.8 per cent. Spanish infrastructure company Ferrovial slid 11.3 per cent to be the biggest blue-chip faller.

The premium investors demand to hold government debt issued by countries such as Greece, Portugal and Spain, rather than benchmark German bunds, rose again.

Investors worry that the need to reduce deficits in these countries will lead to reduced government spending. They also worry Greece will need to be bailed out by other EU members, putting pressure on budgets of countries giving support.

The euro fell below $1.3800 for the first time since June, amid concern about fiscal stability in the eurozone. "When the EU used the word 'ambitious' about Greece's plans to reduce its budget deficit, many people in the market have interpreted that as meaning it doesn't have much confidence the programme will be satisfactorily implemented," said Bob Parker, vice-chairman of asset management at Credit Suisse.

"It has also focused attention on the lack of detail in the Spanish budget proposals and concern about whether Portugal can reduce its deficit," he said. "I regret to say I think it will be more of the same for the market, which will fall further in the short term."

Across Europe, the FTSE 100, Germany's DAX, France's CAC 40 ended the day 2.2-2.8 per cent lower. Spain's IBEX-35 and Portugal's PSI 20 tumbled 5.9 and 5.0 per cent respectively.

One of the few companies on the upside, Vodafone rose 3.6 per cent after raising its outlook when posting third-quarter revenue ahead of forecasts.

Among other individual companies, consumer goods group Unilever fell 3.5 per cent after warning of increasing competition from rivals trying to attract cash-strapped shoppers, overshadowing a forecast-beating 1.8 per cent rise in quarterly underlying sales that fell 2.1 per cent after reporting a 75 per cent fall in fourth-quarter profit.

Wall Street was lower around the time European bourses were closing. The Dow Jones, S&P 500 and Nasdaq Composite were down 2.1-2.4 per cent.