European shares closed lower yesterday as banks fell after Spain had to rescue regional savings bank CCM and auto stocks weighed after the Obama administration regected General Motors' and Chrysler's turnaround plans. The FTSEurofirst 300 index of top European companies closed down 3.9 per cent at 709.10 points. This is the second day of consecutive losses for the FTSEurofirst 300, but the index has closed higher for the past three out of four weeks.

Across Europe, the FTSE 100 index was down 3.5 per cent, Germany's DAX was down 5.1 per cent and France's CAC 40 was 4.3 per cent lower.

Financials were major losers on the index after it emerged another European bank would need state aid.

"The banks have had a really big run recently... now it goes back to how much of a structural turnaround have they really made. ... People's risk appetite is not such to keep pushing," said Philip Lawlor, strategist at Nomura.

On Sunday, the Bank of Spain said it will take over the running of regional savings bank Caja Castilla la Mancha and provide €9 billion in government guarantees to back the bank. Banco Santander, Banco Popular and BBVA were down 4.4 to 7.7 per cent.

Meanwhile, the British government will provide £1.6 billion in net financing to Nationwide building society for the rescue of Scottish lender Dunfermline. Barclays sagged 14.2 per cent following a report that it had opted not to take part in a government asset insurance scheme.

Barclays announced after the market close it would not take part in Britain's asset protection scheme and that its trading performance in 2009 continued to be strong and confirmed its capital position and resources were expected to meet the capital requirements of the Financial Services Authority.

UBS was down 10.8 per cent after Swiss newspaper Sonntag said on Sunday that UBS would write down at least another $2 billion on illiquid assets and cut a further 8,000 jobs. UBS declined to comment on the report.