European stocks snapped a three-day winning run and ended down yesterday, with banks including HSBC and UBS among the main losers as inter-bank lending rates rose to nine-year highs on credit worries.

Miner Anglo American shed 2.9 per cent and bid target Rio Tinto lost 3.5 per cent, tracking lower metal prices, while oil firms also stayed in the red as crude oil prices slid to five-week lows.

The pan-European FTSEurofirst 300 index closed 0.4 per cent lower at 1,520.6, after gaining about four per cent in the last three sessions. The index is up 2.5 per cent so far this year. US indexes traded mixed yesterday.

Fund managers were downbeat on the outlook for shares, citing weaker economic growth.

"We will be reducing equities and we'll move into cash," Keith Wade, chief economist at Schroders, said at a briefing.

"We've entered the stage of the (economic) cycle which is the slowdown. We had been bullish (on equities) for quite some time but we are becoming more cautious now."

London inter-bank offered rates for one-month sterling - average rates London-based banks use to lend to each other - rose to 6.7150 per cent from Friday's 6.09125 per cent.

US stocks pared losses as US Treasury Secretary Henry Paulson said a sub-prime relief plan was near completion.

In Europe, markets are likely to take direction from interest rate decisions due from the European Central Bank and the Bank of England on Thursday, and US jobs data due on Friday.

All 72 economists in a Reuters poll last week said they expected the European Central Bank to hold rates at four per cent, but it was a closer call in Britain.

Fifteen out of 56 economists expect a 25 basis-point rate cut in the UK, and the median probability of such a cut in December was 35 per cent.

Around European markets, Germany's DAX index was down 0.4 per cent and both Britain's FTSE 100 index and France's CAC 40 fell 0.7 per cent.