FRANKFURT European shares fell nearly 6 percent on Monday, their biggest one-day slide since the September 11, 2001 attacks, as fears of a U.S. recession and more write downs in the financial sector sparked a broad-based selloff.
"This is like a panic. It's like out, out, out (of stocks). Run for cover," said Dirk Mueller, a trader at Frankfurt brokerage ICF.
"There is a very ugly sense of capitulation and the worst thing is that we can't see where it will all end," said Javier Galan, fund manager at Spanish brokerage Renta 4.
The FTSEurofirst index .FTEU3 index of top European shares closed down 5.8 percent at 1,279.85 points, having earlier hit an 18-month low of 1,278.79. Monday's fall was the index's 11th drop in 14 sessions for a total loss of 15 percent in 2008.
"Financial markets have again been caught by fears of a U.S. recession and a worsening of the problems in the financial sector," Danske Bank strategists said in a research note.
"The pace of the decline has been very strong and indicates that investors that have been long equities are now taking their losses," Danske Bank said.
Germany's DAX .GDAXI dropped 7.2 percent, the French CAC 40 .FCHI was down 6.8 percent and Britain's FTSE .FTSE lost 5.5 percent. The slide in these three indexes wiped out more than $350 billion of the value of their constituent stocks, equal to the combined gross domestic product of Hungary and Greece.
There were big losses elsewhere, too, with Switzerland's benchmark index .SSMI falling 5.3 percent, Italy's MIB 30 .MIB30 dropping 5.1 percent and Spain's IBEX .IBEX plunging 7.5 percent.
The broad-based selloff in Europe tracked losses for global equities. The MSCI's main index of world stocks .MIWD00000PUS was down 3.3 percent to its lowest level in over a year. U.S. stock markets were closed for the Martin Luther King holiday.
"It's a snowball effect ... there are very, very many pessimists in the market," said Boris Boehm, fund manager at Nordinvest in Germany.
"We are not compelled to buy yet despite bearish sentiment," investment bank Morgan Stanley's European equity strategy team said in a note. "We continue to prefer cash over equities."
The specter of a slowdown in economic growth hit basic resources shares the hardest, with the DJ Stoxx sector index .SXPP falling 8.1 percent. Steel maker Arcelor-Mittal MTP.PA slumped 11.3 percent and miner BHP Billiton (BLT.L) shed 10.4 percent.
Financials also fell sharply with insurers tumbling amid worries over their bond exposure after news that a unit of U.S. Ambac Financial Group ABK.N had lost its AAA credit rating."
Dutch ING Group ING.AS sank 10.5 percent while and Germany's Allianz (ALVG.DE), French AXA (AXAF.PA) and Swiss Re RUKN.VX lost 10 percent each.
Banks also took a beating, with the DJ Stoxx sector index .SX7P down 6.8 percent. In France, BNP Paribas (BNPP.PA) fell 9.6 percent and Spain's Santander (SAN.MC) was down 9 percent.
Societe Generale (SOGN.PA), which lost 8 percent on Friday on market rumors that the French bank could report write-downs, lost a further 8 percent.
"We're falling back into the crisis of confidence in the financial sector. The banks have been reassuring the market over their exposure to U.S. mortgage-related investments, but now we realize there is nothing reassuring about it," said Hugues Rialan, managing director in charge of discretionary asset management at Robeco France.
Among the few gaining stocks, Friends Provident FP.L rose 3.6 percent after U.S. private equity firm JC Flowers said it was considering an offer for the life insurer.
(Additional reporting by Sitaraman Shankar and Michael Taylor in London, Blaise Robinson in Paris, Elisabeth O'Leary in Madrid and Eva Kuehnen in Frankfurt; Editing by David Holmes)