European shares fell for the 10th session in the last 11 on Wednesday as a relief rally for battered banks was not enough to offset declines for other sectors, notably energy and drugmakers. The FTSEurofirst 300 index of top European shares fell 0.7 percent to 769.15 points, its lowest close in more than two months.
It ended the day just 1 percent above its lowest close since April 2003. Britain's top share index closed 0.8 percent lower, with economic gloom weighing on energy shares and Barclays taking a tumble on fears it may need to raise funds or could be nationalised.
The FTSE 100 closed at 4,059.88 points, down 31.52 or 0.77 percent. Energy stocks were a major drag on the index, though crude prices rose to more than $42 a barrel. They have still fallen more than 70 percent below their peak - more than $147 reached in the summer of 2008 - on worries of slowing demand in the face of world-wide economic turmoil. Total, BP, Royal Dutch Shell, gas producer BG Group and ENI fell between 1.8 and 2.7 percent.
Although banks bounced, analysts said their troubles were still the root cause of nervousness in the markets. "There's so much uncertainty about banks being nationalised," said Elin Anden, strategist at Cazenove, "and the effect this would have on governments' balance sheets, and credit ratings". Deutsche Bank, HSBC, Natixis, Royal Bank of Scotland, Societe Generale and UBS rose between 3.9 and 21.4 percent.
European governments provided further support to struggling banks but have largely failed to reverse mounting gloom, with a UK politician calling for nationalisation of two top lenders. Banks to fall included the UK's Barclays, down 9.3 percent. It has fallen more than 50 percent in the last week.
The pan-European index is down 7.8 percent so far this year after plunging 45 percent last year, hurt by a financial crisis that began with US mortgage defaults in 2007 and now threatens much of the world with deep and vicious recession. Banks have been hit hard, with the European sector index touching a 16-year low on Wednesday.
The latest evidence of deepening recession came in the UK, where unemployment rose 131,000 to 1.92 million in the three months to November, the highest since September 1997, just after the ruling Labour party took office. GlaxoSmithKline, Novartis, AstraZeneca and Sanofi-Aventis fell between 3.1 and 4.3 percent.
But telecom equipment maker Ericsson jumped 12.3 percent after it posted fourth-quarter operating earnings above market expectations and said it would continue cutting costs. Across Europe, Britain's FTSE 100 and France's CAC-40 fell 0.8 and 0.7 percent respectively. Germany's DAX rose 0.5 percent, with Siemens rising 3.5 percent and adding most points to the index.