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By 0856 GMT, the FTSEurofirst 300 index of top European shares was down 2.6 percent at 1,075.90 points, having fallen more than 3 percent earlier.
Belgian-Dutch group Fortis underwent nationalization on Sunday after emergency talks with European Central Bank President Jean-Claude Trichet.
Fortis is the first major euro zone bank to buckle since
"The nationalizations have an incredibly negative read across for the sector," said Mark Sartori, head of European sales trading at Fox-Pitt, Kelton.
"The contagion is spreading to mainland
The DJ Stoxx European banking sector index fell nearly 5 percent.
Fortis's Belgian-French rival Dexia sank 23 percent following a Le Figaro newspaper report that said the bank could launch an emergency capital increase.
A Dexia spokesman said that it continued to evaluate a response to the current global financial crisis, offering no comment on any capital increase. He said the company's liquidity situation was totally healthy.
Hypo Real Estate plummeted 60 percent after it secured a credit line of up to 35 billion euros ($51.21 billion) from a consortium of listed and public-sector banks in
"This move will have significant impact on Hypo Real's future profits. We are downgrading from "buy" to "hold" as an initial step. Our estimates and target price are under review until further details are disclosed," said Christoph Bossmann, at WestLB.
Across Europe the FTSE 100 index was down 2.5 percent,
BANKS, COMMODITIES IN A
The
"The news from Fortis and Bradford & Bingley has agitated worries that there are more problems out there and that the $700 billion package will not turn things around quickly. There are concerns now earnings across most markets will be weak," said Bernard McAlinden, market strategist at NCB Stockbrokers.
Royal Bank of
Investors stayed cautious as
Worries over demand from a slowing economy pushed miners lower as copper fell 2.6 percent.
Anglo American,
Meanwhile oil extended its decline, with crude falling nearly 3.3 percent to $103.27 a barrel, pressured by gains in the U.S dollar.
BG Group, BP and Royal Dutch Shell were between 1.7 and 2.2 percent lower.