European shares slipped 3.3 per cent yesterday to record their biggest one-day percentage drop in seven months as concerns about debt problems in Dubai weighed on the market, with banks the major fallers.
The pan-European FTSEurofirst 300 index of top shares closed down 33.81 points at 988.14 - its lowest close in three weeks.
"The Dubai worries have played a major role in rattling market sentiment at a time when the US is closed and we are not getting anything from anywhere else," said Peter Dixon, economist at Commerzbank.
"It is a day in which market uncertainty has been provoked again. I do not think it really reflects the underlying fundamentals of the economy and the market, it is just a sentiment shock."
Dubai, whose extravagant building projects have been largely put on hold since the start of the global financial crisis, said on Wednesday it would ask creditors at its flagship firms Dubai World and property developer Nakheel to delay repayment on billions of dollars of debt.
Banks took the most points off the index on concerns about their potential exposure to debt problems in Dubai.
Across Europe, the FTSE 100 index was down 3.2 per cent, Germany's DAX was 3.3 per cent lower and France's CAC 40 was down 3.4 per cent.
HSBC, Banco Santander, BNP Paribas, Barclays and Credit Suisse were down 3.3 to 8 per cent. Other financials moved lower on Dubai exposure concerns.
The London Stock Exchange fell 7.4 per cent and Dutch insurer Aegon lost 7.7 per cent.
Shares in publishing and events group Informa, which has many Middle Eastern trade fairs, fell about 9.8 per cent.
Porsche lost 5.1 per cent as traders pointed to worries that Qatar Investment Authority may cut its 10 percent stake in the carmaker to boost liquidity after the Dubai government asked for a debt standstill on two of its firms.
Oil stocks featured among the worst performers as oil fell 2.3 per cent. BG Group, BP, Royal Dutch Shell and Total were down 2.4 to 3.6 per cent.
Miners slipped as metal prices retreated. Anglo American, Antofagasta, BHP Billiton, Eurasian Natural Resources Corporation, Rio Tinto and Xstrata were 4.2 to 6.8 per cent lower.
"It shows how vulnerable the market still is to newsflow," she said. "But it should be seen as a country-specific issue. It's not something systemic. It's about risk appetite," said Georgina Taylor, equity strategist, Legal & General Investment Management.
"It's a reason for some of those involved in the market to scale back a bit, while we try to understand what's going on."
Meanwhile, share trading on the London Stock Exchange was halted for more than three hours in mid-morning trade following a technical glitch.