Brazil's devaluation of the real sent shock waves through the European banking sector, notably in Madrid, where steep falls for Santander and BBV sparked the steepest one-day decline for Spanish shares since August 1991.
Santander fell #1.95 to #14.28 and BBV came off #1.83 at #11.69, falls of more than 12 and 13.5 per cent respectively, as concern at the banks' heavy exposure to Latin American lending sparked a wave of near frantic selling.
Telecoms giant Telefonica tumbled #2.88 or 7.2 per cent to #36.72. The benchmark index finished at its low for the session at 827.77, down 57.50.
Frankfurt was hard hit as its exporters and banks were stung by the weakening dollar and concerns over how far Brazil's financial crisis would have knock-on effects. The Xetra DAX index tumbled to a low of 4,849.78 before erasing some of the loss to close 214.01 lower at 4,982.12.
The banking sector, already unsettled by the impact of its exposure to China's failed Gitic trust, was sharply lower. One analyst noted that the sector had made only limited risk provisions for South America and any collapse would require substantially more.
Deutsche Bank fell #3.92 to 50 , Dresdner Bank lost #3.20 to #36.30 and Commerzbank dropped 1.27 to 25.90.
Exporters, hurt by dollar weakness against the euro, were also hit.
Volkswagen, due to inaugurate its first car plant in southern Brazil next week, fell #3.60 to #70. Daimler-Chrysler, whose Mercedes-Benz is due to open a factory in Brazil by the end of February, fell #4.70 to #86.30.
BMW, which had agreed to develop an engine plant in Brazil with Chrysler before the Daimler-Chrysler merger, lost #31 to #651.
Paris ended off the bottom with the CAC-40 index down 141.9 at 3,958.72 after a low for the day of 3,845.77. Renault was the day's steepest faller, sliding #3.55 or 8.6 per cent to #37.60.
Banks were visibly weak. BNP fell #4.95 to #68.10 and BO]Societe Generale came off #11.10 at #141.80.
LVMH chose the wrong day on which to announce that it had no plans to launch a full-scale take-over bid for Gucci, the Italian fashion house in which it has a 5 per cent stake. The shares ended #13.40 lower at #193.
Alcatel lost #6.20 at #105.80, with sentiment not helped by rumours of an impending US merger for Ascend Communications, with whom Alcatel recently announced a development alliance.
Amsterdam fell 28.95 to 507.29 on the AEX index, led lower by steep falls among financials. ABN Amro tumbled #1.65 or 8.6 per cent to #17.50 in supercharged volume with 23.8 million shares changing hands. ING fell #5 to #49, a decline of 9.3 per cent.
