European shares fell to their lowest close in nearly nine months today, with banks hit as interbank lending rates rose and worries persisted that austerity measures to be taken in European economies will hurt growth.
The pan-European FTSEurofirst 300 index fell 2.4 per cent to 949.87 points, its lowest close since early September 2009.
The index is down more than 14 per cent from a peak last month over worries about the euro zone's sovereign debt problems.
Among the banks to fall were Bank of Ireland, AIB, Banco Santander, BBVA, Credit Agricole, Lloyds, Societe Generale and UniCredit, down between 3.9 and 12.8 per cent.
In Dublin, the Iseq also tumbled closing down over 109 points at 2,776.5, led by a sharp decline in bank shares.
AIB was the biggest loser throughout the session ending 12.8 per cent lower at 90.7 cent, followed by Bank of Ireland stock which dropped 8.9 per cent to 66.5 cent.
Irish Life and Permanent shares fell 4.7 per cent to €1.98.
Banks have been hit by the global weakness in financial shares, in addition to falling demand in the mortgage market and losses incurred from toxic loans.
Some upbeat US economic data helped the index come off its low of 939.64 for the day. "Consumer confidence was a very strong number but when you take out the day-to-day noise what's driving the markets so badly at the moment is concern about European banking risk, with a focus on savings banks in Spain after the restructuring of CajaSur," said Bob Parker, vice chairman of asset management at Credit Suisse.
He added: "Concern is shifting to what writedowns banks are going to have to make, and to what extent is there a systemic problem in the Spanish savings bank system."
Southern European countries such as Spain and Greece have announced radical austerity measures to cut their national debt and Italy is due to follow today, but strategists say this may hurt growth.
Dollar interbank rates rose today and were seen pushing higher as the euro zone debt crisis made banks wary of lending to European peers. Bund futures hit a record high.
Across Europe, the FTSE 100, Germany's DAX and France's CAC 40 ended the day between 2.3 and 2.9 per cent lower. Wall Street was lower around the time European bourses were closing.
The Dow Jones, S&P 500 and Nasdaq Composite were down between 1.7 and 1.9 per cent. Spain's IBEX lost 3.1 per cent, Portugal's PSI 20 fell 2.8 per cent and Italy's benchmark was down 3.4 per cent.
Virtually every sector fell, but oils and drugmakers were among those taking most points off the index. Crude prices fell more than 2 per cent. Total, Repsol and StatoilHydro fell between 1.3 and 3.5 per cent.
BP fell 1.6 per cent, and is down more than 27 per cent from a peak last month as it has not yet managed to shut off the oil gushing from its deepwater well blowout in the Gulf of Mexico.
Heavyweight pharmaceuticals to fall included GlaxoSmithKline and Roche, down 2.1 and 2.2 per cent respectively. Nervousness in the market was exacerbated by heightened political tensions on the Korean peninsula after the North Korean leader Kim Jong-il ordered his military to be on a combat footing.
Macroeconomic news, however, was generally upbeat. US consumer confidence rose for the third straight month in May to the highest in more than two years.
Single-family home prices were unchanged in March from February, but fell in the first quarter on renewed price pressure as federal aid faded away, Standard & Poor's/Case Shiller home price indexes showed.
Euro zone industrial new orders rose in March at their fastest rate in 10 years.
Agencies