Europe Shares Hit 2-Mth Low, Banks Continue Slide

The FTSEurofirst 300 index of top European shares closed 16.75 points lower at 774.48.

European shares fell 2.1 percent to a two-month closing low on Tuesday on mounting concerns that the financial sector will need more state help to emerge from a crisis that has threatened the survival of some large banks.

Britain's Lloyds plunged 31 percent, Belgian KBC Groep lost 24 percent and French banks took a hammering after Economy Minister Christine Lagarde said that all banks accepting a future tranche of state aid would need to limit dividend payments to shareholders and ban executive bonuses.

BNP Paribas fell 13 percent and Societe Generale lost nearly 14 percent.

The FTSEurofirst 300 index of top European shares closed 16.75 points lower at 774.48. The index is down more than 7 percent already this year, after slumping 45 percent in 2008.

Barack Obama's ascension to the job of U.S. president also failed to cheer the market, although his aides were set to go to work immediately after he takes the oath, armed with the authority to spend the second half of the $700 billion Troubled Asset Relief Program (TARP).

"For the time being, we are going to remain in a shaky environment and see further bad loan writedowns in Q4 and Q1," said Franz Wenzel, strategist at AXA Investment Managers.

"Once you have lost confidence, it takes four to five times longer to regain (it)," he said.

Insurers also lost ground. Swiss Re was down 8.8 percent, Allianz fell 5.8 percent and ING Groep slipped 13.5 percent.

On Monday, Britain threw its troubled banks a second multi-billion pound lifeline in three months and gave its central bank the green light to pump cash into the ailing economy because interest rates are already close to zero.

But Europe's banking index hit a 14-year low on Tuesday as stocks fell on fears that lenders will need more state help to raise capital as economies sink into recession and bad debts rise.

Sterling hit a 7-1/2 year low against the dollar on concerns over the UK banking sector.

"There is pressure on the banking industry as there is still uncertainty of the level of toxic assets," said Heino Ruland, strategist at FrankfurtFinanz.

Across Europe, the FTSE 100 index fell 0.4 percent, Germany's DAX was down 1.8 percent and France's CAC 40 was 2.2 percent lower.

MARKET GLOOM CONTINUES

French Prime Minister Francois Fillon said carmakers needed massive, fast financing aid and his government was considering a package to help them worth 5-6 billion euros.

Peugeot fell 6.5 percent and Renault slumped 8.8 percent.

Other automakers also fell. BMW, Daimler AG, Porsche and Volkswagen AG, were down 1.3 to 2.9 percent.

Italy's Fiat took an initial 35 percent stake in Chrysler, launching a venture designed to secure both carmakers' futures, as France asked its auto industry to commit to output targets in exchange for aid. Fiat was up 0.7 percent.

Retailers were also on a shaky ground as shoppers cut spending amid fears of a deep recession and job losses. Sainsbury fell 5.2 percent, Morrison was down 1.7 percent and Tesco lost 0.8 percent.

But Metro AG, Germany's top listed retailer, jumped 7.9 percent after it said it aimed to add 1.5 billion euros ($2 billion) to profits by 2012 by cutting costs and lifting productivity. British luxury goods firm Burberry rose 12.4 percent after it announced up to 35 million pounds ($49 million) of savings, including 540 job losses in the UK and Spain.