LONDON, March 19 (Reuters) - European shares fell for a second day on Tuesday, with investors spooked by the possibility that Cyprus could reject a bailout, likely leading to bank collapses and unpredictable fallout for the rest of the euro zone.
Cyprus parliament was widely expected to reject the 10 billion euro ($12.96 billion) rescue package - which, in a break with previous EU practice, includes a levy on bank accounts - at a vote on Tuesday.
With the Cyprus stock exchange closed, Greece was the worst hit of the regional bourses, shedding 3.9 percent.
The pan-European FTSEurofirst 300 provisionally closed down 0.4 percent at 1,195.58 points after a volatile session.
The EuroSTOXX 50 index of euro zone blue chips - which tends to be more sensitive to swings in sentiment on the region - fell 1.1 percent.
The VSTOXX implied volatility index - a crude barometer of investor risk aversion - jumped, taking its gains so far this week to 37 percent and marking its biggest two-day rise in 1-1/2 years, as investors sought out protection against or bet on further market falls.
“VSTOXX had a significant jump so you can see that people are aware of the risk, especially in the near term,” said Ioan Smith, strategist at Knight Capital.
“Personally I think it is pretty serious ... It’s very myopic to look at the size of Cyprus, this is more of a procedural or operational impact across the board.”