Paris gave up early gains to close down 59.25 at 2,979.89 on the CAC 40 index after touching a session best of 3,086.81.

Turnover was again heavy at 15.7 billion French francs.

Although there were pockets of resistance, the broad trend was determinedly weak.

France Telecom gained Ffr8 at FFr378 after the government put its planned share issue on ice. Alcatel rallied Ffr30 or 6.7 per cent to Ffr477 as investors took advantage of last week's severe weakness.

Banks made a disappointing end, having pushed determinedly higher earlier in the day.

Frankfurt finished in negative territory with the Xetra Dax index closing below the 4,000-point level for the first time since late November.

The index fell 48.32 to end at 3,970.99.

Banks had a good day in spite of news that Moody's had cut the ratings outlooks of Deutsche and Dresdner in response to their exposures to emerging markets.

Deutsche, the country's largest commercial bank, put on 1.25 deutschmarks to DM83.25.

Recent profit warnings and negative broker comment sent Amsterdam down 2.3 per cent with the AEX index ending off 19.28 at 829.31.

Although Milan managed to shrug off political uncertainty, shares were hit by falls on Wall Street and other European bourses, and the Mibtel index fell 659 or 3.7 per cent to 17,074.

The departure of the Communists from Prime Minister Mr Romano Prodi's coalition failed to affect sentiment, as analysts said it would only slow down the budget's approval procedure.