European shares closed sharply lower yesterday and the euro tumbled to near one-year dollar lows on fresh concerns the measures trumpeted at last week’s EU summit will not solve the eurozone debt crisis.

Dealers said the lack of any new economy-boosting plans from the US Federal Reserve also dented sentiment, leaving investors with no lead to go on against a backdrop of dire warnings about the economic outlook.

“The market (is) realizing that the summit last week solved very little, sovereign debt is still a major issue and growth – you can forget about it for the foreseeable future,” said ETX Capital trader Manoj Ladwa.

The banks suffered, with Germany reactivating a banking sector bailout fund after its lenders were told last week they needed to raise more than double the amount of new capital previously estimated.

Pessimistic comments from German Chancellor Angela Merkel on it requiring years to mend the eurozone’s problems likely added to the subdued mood after she dashed hopes Tuesday about a boost for the bloc’s rescue fund.

In London, the FTSE-100 index of top companies lost 2.25 per cent to 5,366.80 points. In Paris, the CAC-40 tumbled 3.33 per cent to 2,0976.17 points and in Frankfurt the DAX 30 shed 1.72 per cent to 5,675.14 points. Other European bourses posted similar heavy losses.

In New York, stocks fell at the opening and then extended losses. The blue-chip Dow Jones Industrial Average was down 0.99 per cent while the tech-heavy Nasdaq Composite shed 1.83 per cent at around 1645 GMT. “Market participants shifted their attention to the action of Europe, where the region’s major bourses are battling renewed selling,” Briefing.com analysts said in a note.

The European single currency sank to $1.2975, its lowest level since January and down sharply from $1.3033 in New York late yesterday.

“The euro is under pressure as the markets are disappointed with the outcome of the EU summit which they (see) as doing little to resolve the debt and banking crisis,” VTB Capital economist Neil MacKinnon said.

“The initial bout of weakness ... turned ugly in the afternoon as traders factored in the reality of the global economic situation,” Mr Ladwa said.

With no move from either the European Central Bank or Fed to bolster growth, “many are left wondering where the upside will come from”.