LONDON, England (Reuters) -- European shares fell across the board on Thursday, suffering their biggest daily drop in five months as a worsening environment for financing takeovers and worries about U.S. housing sparked global risk aversion.
Banks were among the biggest drag on the index with Royal Bank of Scotland Credit Suisse and UBS down between 3.0 and 3.4 percent.
The pan-European FTSEurofirst 300 index closed 2.8 percent lower at 1,527.8, the lowest since April 2, and down for the third day in a row.
The FTSEurofirst 300 index has lost nearly 7 percent since hitting a 6-1/2-year high of 1,635.6 on July 13, but is still up 3 percent so far this year. Volumes were at their highest in more than one month, with 4.6 billion shares traded.
"What you are now seeing is crunch point reached at which credit markets start to take notice," said Max King, global investment strategist at Investec Asset Management.
"Tightening credit is like putting a brick with a piece of elastic. For a long time nothing happens and suddenly the brick moves and wallops you," he said, highlighting markets' resilience to rising interest rates in the last few months.
U.S. stock indexes took a beating on signs of further deterioration in the housing market, higher oil prices and financing worries.
By the close of European trading hours, the Dow Jones industrial average was down 1.3 percent and the Nasdaq had tumbled 1.6 percent.
U.S. Treasuries rallied and the dollar fell below 119 yen to a three-month low.
Frankfurt's DAX lost 2.4 percent, Paris's CAC 40 declined 2.8 percent and London's FTSE 100 tumbled 3.2 percent.
The FTSE 100 slid by the biggest one-day percentage since March 2003. The banking and mining sectors were worst hit by economic jitters.
Weighing heavily on the FTSEurofirst 300 index, German industrial group Siemens lost 5.6 percent, extending Wednesday's 6 percent tumble, hit by an unexpected acquisition and poor quarterly results.
"If you tell people at the end of the quarter that operations are doing fine and there will be no major acquisitions, and then you announce mixed results and a big medical buy, you can't be surprised that people don't like it," said JP Morgan analyst Andreas Willi.
"In terms of communication, this is as bad as it gets."
Truck maker Scania tumbled 11.6 percent after it reported a smaller-than-expected rise in second-quarter pretax earnings. E-mail to a friend
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