Frankfurt Dax:

German shares tumbled almost 2.5 per cent as a sharp Dow Jones decline added to pressure from a retreating dollar and further turbulence in Asian markets.

"A few days ago people were looking for a reasonable end-year rally but that is in question now," one dealer said. "The crucial thing is how far Wall Street falls, and whether the damage from Asia can be limited."

Dealers said the psychologically-important 4,000 level would provide the next support. "We may be able to hold above 4,000 points, but that is out of our hands, it depends on the Dow," a dealer said.

The dollar's retreat to around 1.77 marks, after its foray above 1.79 earlier in the week, also contributed to the pressure on the market.

Paris CAC-40:

The French bourse closed sharply lower dragged down by Wall Street and increasing concerns over the Asian crisis.

Traders said the bourse was also depressed by the lower dollar and the burst of the speculative bubble in the French financial sector, which supported the whole index on Wednesday amid takeover rumours.

"Most of the rises this week had been either technical or speculative so it is normal that we should fall back now," a trader said.

Traders said the market still expected a bid in the banking sector, widely seen on the brink of consolidation, but all agreed Wednesday's wild speculation, which drove up 9 per cent, was exaggerated.

Milan Mibtel:

Italian shares closed above the day's lows, but still fell by over 1 per cent as the weakness on Asian markets and the early weakness in New York dampened sentiment.

Olivetti shares were the most active, rising by 2.5 per cent - supported by hopes of a quick conclusion to the merger between Olsy and Wang, as well as Bell Atlantic's sale to Olivetti of its 33 per cent stake in Infostrada.

Telecom Italia Mobile shares fell 1.6 per cent as investors failed to react to a statement from the mobile phone company's chief executive that profitability would not be affected by a possible cut in mobile phone rates.