European shares hit a one-month closing low on Tuesday as disappointing results from Swiss lender UBS and a move by Britain's Royal Bank of Scotland to join a government scheme hurt financials. The FTSEurofirst 300 index of top European shares ended 1.2 percent down at 968.93 points, the lowest closing level since early October.
The index, which slumped 45 percent last year, is still up 16 percent in 2009 and has surged 50 percent since hitting a record low in early March. The VDAX-NEW volatility index rose to a six-week high. The higher the index, which is based on sell and buy options on Frankfurt's top-30 stocks, the lower is the desire for risk.
Financials were among the biggest losers. The DJ STOXX European bank index, which has spiked 150 percent since hitting a floor in March, was down 3 percent after touching its lowest level since mid-August. "People are worried about the banking sector once again because we have had a couple of European results that were somewhat worse than expected," said Luc Van Hecka, chief economist at KBC Securities.
UBS fell 5.8 percent after higher-than-expected accounting charges pushed it into its fourth consecutive quarterly loss and disappointing net withdrawals of 36.6 billion Swiss francs ($36 billion) at its key wealth and asset management business.
A shake-up of British banks - Royal Bank of Scotland and Lloyds Banking Group - and the European Commission's estimates after results of stress tests in the banking sector showing losses could amount to 400 billion euros ($590.9 billion) in 2009-2010 raised questions about the sector.
RBS was down 7 percent after hitting a six month low earlier in the session. It said it would join the government's asset protection scheme (APS) which is designed to insure riskier loans and accept punitive disposals and caps on its activities.
Lloyds, however, gained 2.7 percent on relief that a record 13.5 billion pound ($22 billion) rights issue would mean it can stay out of the government scheme. Other banks were also down, with Standard Chartered, HSBC, Barclays, BNP Paribas, Societe Generale, Credit Agricole and Bank of Ireland falling 1.8 to 11.8 percent.
Commodity shares also fell in line with the broader market trend. Miner BHP Billiton, Anglo American, Xstrata and ENRC fell 1.2 to 2.6 percent, while oil major BP, Royal Dutch Shell and Repsol were down 0.6 to 2.1 percent. Investors took comfort from news that Warren Buffett's Berkshire Hathaway Inc will pay $26 billion to buyout railroad Burlington Northern Santa Fe Corp in what the billionaire investor called a bet on the US economy.
Germany's BMW fell 6.3 percent after it gave a tepid markets outlook after third-quarter earnings before interest and tax shrank 86 percent. Across Europe, Britain's FTSE 100 index, Germany's DAX and France's CAC 40 fell 1.3-1.5 percent.