European shares hit a three-week closing low yesterday, hurt by disappointing earnings from Spain’s Banco Santander and Germany’s SAP and on data showing US new home sales unexpectedly fell in September.

The FTSEurofirst 300 index of top European shares fell 1.8 per cent to a provisional close of 981.65 points, its lowest close since October 5.

The European benchmark is still up more than 52 per cent from its lifetime low of March 9.

Banks were among those taking the most points off the index. Banco Santander, the eurozone’s biggest bank by market value, fell 3.9 per cent after it posted a 2.8 per cent fall in nine-month net profit.

BNP Paribas, HSBC and UBS fell between 1.3 and 3.8 per cent.

Ireland’s two main banks Allied Irish Banks and Bank of Ireland plunged 11.9 and 25 per cent respectively on uncertainty over Dublin’s bank rescue measures.

“People have put a bit more money back into the defensives, the cheaper end of the market,” said Philip Lawlor, chief portfolio strategist at Nomura, in London.

“There isn’t going to be any double-dip. The market just got a bit ahead of itself. Valuations went from looking relatively cheap to looking relatively expensive.”

SAP fell 7.7 per cent, after the company cut its sales outlook on weakness in emerging markets and in Japan, leaving investors wondering where the firm will attract new buyers for its high-end software from a client base still keeping costs in check.

Sales of newly built U.S. single-family homes unexpectedly tumbled 3.6 per cent in September in their first drop since March, but the inventory of new homes available at the end of the month shrank to the smallest in 27 years, government data showed.