European shares ended lower yesterday as investor concern intensified about the scale of the economic slowdown, with financials leading the index lower.

The pan-European FTSEurofirst 300 index of top European shares closed off 1.5 per cent at 840.36 points, having sunk as far as 828.68 points.

"Markets are pricing in a greater European slowdown than perhaps imagined towards the end of last year and are selling off," said Peter Dixon, UK economist at Commerzbank.

"I think it is a realisation that the data flow over the last few weeks has been universally awful out of Europe," Dixon said.

European stocks came off lows as a Democratic congressional aide said that US President-elect Barack Obama planned to urge Senate Democrats to back his request for the remaining $350 billion from the financial industry bailout.

Earlier, Federal Reserve Chairman Ben Bernanke said the government could consider buying troubled assets, providing asset guarantees or setting up a so-called bad bank to take over assets in exchange for cash and equity.

"The speech was nothing that had not been heard before," said Dixon.

Banks led the losers on the index. Barclays, RBS and Lloyds TSB were down 5.4-10.1 per cent.

"UK banks have rallied in expectation of the next leg of Government support which is imminent but we stay with the view that the scale and pace of deterioration in the UK economy... suggests that the risk of further capital being required remains significant," NCB Stockbrokers said.

Deutsche Bank fell back 0.9 per cent on talk that Deutsche Post - down six percent - could take a stake in the group as part of a deal to complete the sale of Deutsche Postbank, a source with direct knowledge of the matter said.

Deutsche Postbank soared 11.7 per cent. Post and Deutsche Bank declined to comment.

Fortis gained nearly 18 per cent on market talk that the Belgian government was set to buy the remains of the troubled financial services group.