European shares slid 2.4 percent by midday on Monday as investors digest corporate profits falling at the start of another busy week for earnings, and with banks and energy stocks the biggest losers in the index.
At 1143 GMT, the pan-European FTSEurofirst 300 index of top shares was down 19.10 at 777.66 points.
It was a broadly-based decline for stocks with all 38 sectors of the index in the red.
The index has lost 6.6 percent this year, following a 45 percent decline in 2008, having been hammered by a credit crisis that has helped to tip several major economies into recession.
"People are getting incrementally bearish about the earnings outlook," said Ad van Tiggelen, senior strategist at ING Investment Management, in Amsterdam. "With economies contracting, a 50 percent fall in earnings is realistic."
The index has declined for each of the past five months.
"The chances of a bear market rally are increasing," said van Tiggelen. "That's what usually happens when you get one or two pieces of news that are slightly less bad than expected."
Index heavyweight BP was 2.1 percent lower ahead of fourth-quarter results on Tuesday following Shell reporting a sharp fall in profits on Thursday.
With crude prices down more than 3 percent at $40.36 a barrel, its peers also suffered.
Total, ENI, Royal Dutch Shell, Statoil and BG Group were down between 1.4 and 3 percent.
Oil service companies Technip and Subsea 7 were 3.6 and 1.5 percent lower respectively after they agreed to dissolve a joint venture in the Asia/Pacific region.
On the macro front, 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 at Handelsbanken.
BANKS FALL
Banks took the most points off the index. The DJ European banks index is down 14 percent for the year after falling nearly 65 percent in 2008.
French bank BNP Paribas fell 11.9 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 11 percent after Moody's cut its long term rating on the company, 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 5-7.4 percent.
Rio Tinto was the standout gainer, up 6.1 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. Irish airline Ryanair gained 4.6 percent despite reporting a loss for the third quarter. Chief financial officer Howard Millar said the company expects to report a higher profit in its 2009/10 business year than in the current year ending in March, as it gains form lower oil prices.
Across Europe, the FTSE 100, Germany's DAX and France's CAC 40 were down between 2 and 2.6 percent.
Closely-watched U.S. manufacturing PMI figures are due at 1500 GMT.
Futures for the Dow Jones, S&P 500 and Nasdaq were down between 1.4 and 1.8 percent.
