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Europe takes worst hit in 4 years

  • Story Highlights
  • European shares suffered their largest one-day fall in over four years
  • FTSEurofirst 300 index ends day 3.4 percent lower
  • DAX-New volatility index hit its highest in almost four years
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LONDON, England (Reuters) -- European shares suffered their largest one-day fall in over four years on Thursday, driven by a drop in financial stocks as concern grew that the worsening credit environment could drag on economic growth.

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The FTSEurofirst 300 index of leading European shares ended the day 3.4 percent lower at 1,440.81 points, its lowest level since mid-March this year, and its largest daily percentage fall since March 2003.

The DAX-New volatility index hit its highest in almost four years as investors panicked about the possibility that the liquidity squeeze in the financial markets may hit economic growth, particularly in the United States.

Countrywide Financial Corp, the top U.S. home lender, said it drew down an entire $11.5 billion bank credit line as a global credit shortage limited its access to short-term cash.

"The current turmoil in global credit and equity markets is possibly the largest financial shock of the past decade," said T.J. Bond, a Merrill Lynch economist, in a note.

"The spark lay in the U.S. subprime mortgage market, but the fire has spread well beyond. Widening credit spreads and (especially) strains to the process of securitization -- a critical link in financial intermediation in recent years -- have the potential to affect real economic activity."

Shares in bank stocks were the largest negative weight on the FTSEurofirst, which is now on track for its fifth successive weekly fall and is now down about 3 percent so far this year.

BNP Paribas lost 3 percent, while HSBC fell 2 percent and ABN AMRO shed 5.6 percent.

Fears over the credit market spilled from the financial sector to the broader market, with shares in Dutch chemicals group Akzo Nobel falling 8 percent on concerns that Henkel, its partner in the takeover of Britain's ICI Plc, would have trouble financing its part of the deal, traders said.

Henkel said it was "absolutely sure" it would be able to finance its planned purchase of National Starch from ICI but its shares fell 3.5 percent, while ICI fell 3 percent.

Oil majors slipped along with a 3-percent fall in the price of crude oil futures, leaving BP shares down 2.7 percent and Total down 4.2 percent.

"After the drop on Wall Street and Asian bourses, it's no surprise to see European markets under such pressure again," said Valerie Plagnol, chief strategist at CM-CIC Securities, in Paris.

"The nervousness will prevail today, at least until the U.S. housing data comes out. Better-than-expected figures could ease the worries over the sector, but investors will remain on their guard," Plagnol said.

The mining sector came under fire as commodity prices sank. BHP Billiton lost 7.3 percent, while Anglo American shed 9.4 percent and Rio Tinto dropped 7 percent.

Around Europe, Germany's DAX index shed 2.4 percent, the UK's FTSE 100 index was down 4.1 percent and France's CAC 40 fell 3.3 percent. E-mail to a friend E-mail to a friend

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