European shares were down sharply by midday as nationalisations in Belgium and the UK and liquidity worries hurt bank stocks, more than offsetting optimism generated by prospects of approval for the United States' $700 billion bailout plan for its banks.
By 1114 GMT the FTSEurofirst 300 index of top European shares was down 3.4 percent at 1,067.32 points. The index has fallen 29 percent this year.
Belgian-Dutch group Fortis was partly nationalised on Sunday after emergency talks with European Central Bank President Jean-Claude Trichet.
Meanwhile 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.
Fortis is the first major euro zone bank to buckle since U.S. mortgage defaults triggered global financial turmoil in August last year.Its shares gave up early gains to slide 18 percent.
Investors also stayed cautious as U.S. lawmakers prepared to vote later on Monday on a $700 billion government fund to buy bad debt, worrying that this may not be enough to help stabilise the economy.
"If this is how markets behave when the bail-out is such a positive step, you dread to think what will happen if it isn't approved," said Mike Lenhoff, strategist at Brewin Dolphin.
"The bail-out seems like an anti climax: Congress has tried to make itself the star," he said.
"And we've now got worries that the inability of the financial system to function has spread to Europe, with Fortis and B&B (Bradford & Bingley). There's a sense of fear and panic. Until now, nobody has taken the view that deposits are risky, or that insurance policies are risky."
The DJ Stoxx European banking sector index fell 5.4 percent .
Fortis's Belgian-French rival Dexia plunged 27 percent following a Le Figaro newspaper report that said the bank could launch an emergency capital increase.
A Dexia spokesman said that it continued to evaluate a response to the current global financial crisis, offering no comment on any capital increase. He said the company's liquidity situation was totally healthy.
Germany's Hypo Real Estate plummeted 80 percent after it secured a credit line of up to 35 billion euros ($51.21 billion) from a consortium of listed and public-sector banks in Germany, a source familiar with the situation said.
Commerzbank was down 15 percent despite the group saying it has already covered group refinancing needs for 2008.
Royal Bank of Scotland, UBS, Banco Santander, Barclays, UniCredit and BNP Paribas were 5.7-8.2 percent lower.
STRONGER DOLLAR HURTS OIL, MINERS
Across Europe the FTSE 100 index was down 2.8 percent, Germany's DAX was 3.3 percent lower and France's CAC 40 was down 3.1 percent.
Futures for the Nasdaq, S&P and Dow Jones (DJc1 were between 1.6 and 1.8 percent lower.
A stronger dollar, and worries over demand from a slowing economy pushed miners lower as copper fell 2.6 percent.
Anglo American, Antofagasta, BHP Billiton, Kazakhmys , Xstrata were down 4.5-8.4 percent.
Meanwhile oil extended its decline, with crude falling nearly 3.3 percent to $103.27 a barrel, pressured by gains in the U.S dollar. Brent was struggling to stay above $100.
BP, Royal Dutch Shell,, Total and ENI all fell between 2.1 and 2.5 percent. .
Travel group Thomas Cook topped gainers in Britain, rising 3.5 percent after its 53-percent shareholder Arcandor said it would not need to sell any of its stake in the group.
