European shares were lower early on Monday as investors worried about corporate profits, with banks and energy stocks the biggest losers on the index.
By 0932 GMT, the pan-European FTSEurofirst 300 index of top shares was down 2.8 percent at 774.45 points.
"Third week of heavy earnings reporting with around 60 percent of S&P companies still to come — this is another nervous week. It's all about earnings." said Bernard McAlinden, market strategist at NCB Stockbrokers in Dublin.
Euro zone manufacturing business shrank at a slightly slower pace in January while factory prices tumbled at their fastest rate in at least six years, a survey showed, leaving scope for further ECB rate cuts. "The stabilisation in the PMI is of course welcome, but the data is far from suggesting the manufacturing sector is out of the woods," said Martin Enlund, Economist, Handelsbanken.
"Output is still contracting, order books are still contracting, export order books are still contracting. All the stabilisation tells us is that the contraction to activity is no longer accelerating," he added.
Banks took the most points off the index. The DJ European banks index is down around 14 percent for the year after falling nearly 65 percent in 2008.
French bank BNP Paribas fell 14 percent after it said it expected a revised deal to buy assets of stricken Belgian-Dutch financial group Fortis to have a neutral pro-forma impact on its Tier 1 ratio. Investors had hoped the deal would boost the key number.
The stock gained 40 percent last week.
Barclays tumbled nearly 12 percent after Moody's cut its long-term rating on Barclays Bank, citing expectations for "significant" further losses due to credit-related writedowns and rising impairments.
HSBC, Banco Santander, Societe Generale, Credit Agricole and UBS were down 3.2-7.3 percent.
Across Europe, the FTSE 100 index was down 2.3 percent, Germany's DAX was 2.9 percent lower and France's CAC 40 slipped 3.1 percent.
RIO RISES, OTHER COMMODS HIT
Rio Tinto soared 4.2 percent after two sources with direct knowledge of the situation said state-owned Chinese aluminium company Chinalco is in talks with China Development Bank to secure financing for a potential deal with the mining giant.
Other miners were on the downside as copper slipped 2.9 percent, while gold fell more than 1 percent after speculators booked profits from a rally to a near four-month high.
Anglo American, Antofagasta, BHP Billiton, Eurasian Natural Resources Corporation and Xstrata were 1.7-4 percent lower.
Energy stocks were heavyweight losers as crude retreated 1.6 percent. BG Group, BP, Royal Dutch Shell and Total were down 0.8-1.4 percent.
Irish airline Ryanair gained 3.8 percent after Chief Financial Officer Howard Millar said it expects to report a higher profit in its 2009/10 business year than in the current year ending in March.
Investors also turned to the safety of defensive stocks with tobacco the only sector not in the red.
British American Tobacco was up 0.5 percent.
Later in the session, investors will eye the U.S. Manufacturing PMI figures due out at 1500 GMT.
