European shares closed lower yesterday as a relief rally for banks came to an abrupt end, drugmaker AstraZeneca's results failed to impress, and further evidence of worldwide economic weakness emerged.

The FTSEurofirst 300 index of top European shares fell 1.8 per cent to close at 796.49, following three days of gains.

The index lost 45 per cent in 2008, hammered by a credit crisis that forced banks to make massive writedowns and report losses, and that tipped several major economies into recession.

To avoid registering a loss for January, the index will have to rise 4.5 per cent today. "Economic data continues to disappoint," said Georgina Taylor, equity strategist at Legal & General Investment Management. "Some people see it stabilising, but we don't see that. "For us, the market is still in a trading range. There will be rallies and setbacks, as opposed to a new bull market."

She added: "It was a false dawn early this year. And earnings continue to be mixed. We can't really make a call yet on when earnings will hit a trough. It's still about companies with strong balance sheets. "

It was a broadly-based decline for stocks yesterday, with only two of the pan-European index's 38 sectors gaining.

Banks led the losers, giving back some of the gains from earlier this week. The sector has been hammered by worries about nationalisation and funding in recent weeks.

Swiss bank UBS fell 9.8 per cent as traders cited talk of a possible loss of one billion Swiss francs ($865.1 million) on trading activities in the fourth quarter. UBS declined to comment. Banco Santander, Barclays, Credit Suisse, Deutsche Bank, HSBC and Lloyds fell between 2.5 and 11.8 per cent.

Drugmakers were another drag on the index. AstraZeneca closed 6.3 per cent lower after the group posted lower fourth-quarter profits, announced 6,000 job cuts and issued a cautious 2009 sales outlook.