Banks lead Europe shares down on nationalisations

European shares fell sharply early on Monday, led by banks, as news of Fortis's partial nationalisation left investors concerned a U.S. bailout package may not be enough to help stabilise the sector.

By 0717 GMT, the FTSEurofirst 300 index of top European shares was down 0.8 percent at 1,095.99 points.

The banking sector took most points off the index. Royal Bank of Scotland, UBS, Banco Santander, Barclays, Unicredit and BNP Paribas were 1.5-5.2 percent lower.

Fortis jumped early but pared gains to trade just 1.2 percent higher.

Investors stayed cautious as U.S. lawmakers prepared to vote on a $700 billion government fund to buy bad debt, worrying that this may not be enough to help stabilise the economy.

In Europe, the global financial crisis has kept markets on tenterhooks by forcing European authorities to rescue troubled banks.

Belgian-Dutch group Fortis underwent nationalisation on Sunday after emergency talks with European Central Bank President Jean-Calude-Trichet.

Fortis is the first major European bank to buckle since U.S. mortgage defaults triggered global financial turmoil in August last year.

"The nationalisations have an incredibly negative readacross for the sector," said Mark Sartori, head of European sales trading at Fox-Pitt, Kelton.

"The contagion is spreading to mainland Europe and everyone's asking: who's next?" added Sartori.

The UK government said that lender Bradford & Bingley's branch network will be sold to Spanish bank Santander and the remainder of the group would be nationalised.

"The news from Fortis and Bradford & Bingley has agitated worries that there are more problems out there and that the $700 billion package will not turn things around quickly. There are concerns now that earnings across most markets will be weak," said Bernard McAlinden, market strategist at NCB Stockbrokers in Dublin.

Elsewhere oil extended its decline, with crude falling nearly 1.5 percent to $105.28 a barrel, pressured by gains in the U.S dollar.

BG Group, BP and Royal Dutch Shell were 0.4-0.7 percent lower.