European shares sank 6.5 per cent yesterday, reversing a strong two-day rally, on a growing view that bold government moves to tackle the credit crisis would not prevent a global recession.

The FTSEurofirst 300 index of top European shares closed 6.5 per cent lower at 903.67 points. The benchmark index, which is down 40 per cent year-to-date, had gained 10 per cent on Monday and 3.1 per cent on Tuesday.

Investors dumped mining shares, with the DJ Stoxx basic resources index plummeting 16 per cent, tracking a sharp sell-off in commodity prices on recession concerns.

"It's the beginning of the end of the financial crisis, but beyond that a global recession is looming," Emmanuel Morano, head of equity management at La Francaise des Placements, in Paris.

"Fears over a global recession are justified, and these fears have been priced in very quickly. Valuations in the basic resources sector are apocalyptic. This sell-off really has the violence of the crash of 1987."

Rio Tinto tumbled 17 per cent and Anglo American sank 20 per cent. Expectations of weaker global demand for metals were reinforced after the world's largest copper producer Codelco said the premium for refined copper in Europe will be lower around $80 a tonne next year.

Industrial stocks also took a beating, with ABB falling 11 per cent and Siemens sliding 14 per cent.

"There hasn't been much discrimination in the sell-off, and some stocks are now really cheap in terms of valuation. Shares of a number of great firms have fallen to ratios similar to the ones of really bad companies. Earlier this week, you could buy some GlaxoSmithKline at a P/E ratio of 8.5, SAP at 11.5."