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Oil and Gas

European shares hit lowest close in 3-1/2 years

* FTSEurofirst 300 makes biggest 1-day pct fall since Jan

* Benchmark index falls 5.2 pct to 3-1/2 yr closing low

* Stronger dollar hurts crude oil, metal prices

FRANKFURT, Sept 29 (Reuters) - European shares slumped to a three-and-a-half year closing low on Monday, with banks weighing heavily, as the fallout from the credit crisis escalated on both sides of the Atlantic.

Financials were battered by news of the part nationalisation of two major European banks and the sale in the United States of Wachovia Corp's WB.N bank operations to Citigroup C.N, in addition to ongoing liquidity concerns.

Hopes that a U.S. rescue plan could solve the financial sector’s problems, as U.S. lawmakers met to vote on the $700 billion bailout proposal, failed to help bank stocks.

The FTSEurofirst 300 .FTEU3 index of top European shares closed down 5.23 percent at 1,047.04 points -- its lowest closing level since January 2005.

The benchmark, which is down around 27 percent this year, also notched up its biggest one-day percentage fall since Jan. 21, 2008.

“Investors are fearful, frenetic, especially when it comes to banking shares. They want to get out now and see the after effects from afar,” said Frank Geilfuss, head analyst at Bankhaus Loebbecke.

“This is a market running on fears at the moment and not on fundamentals.”

The DJ Stoxx European banking sector index .SX7P fell 7.75 percent, with UBS UBSN.VX, Royal Bank of Scotland RBS.L and Barclays BARC.L falling between 8.8 and 13.6 percent.

Early in the day, the governments of Belgium, the Netherlands and Luxembourg moved to partly nationalize Belgian-Dutch group Fortis FOR.BR with an injection of more than $16 billion, and German lender Hypo Real Estate Holding AG HRXG.DE secured a credit line from the German government and banks of up to 35 billion euros ($50.22 billion).

Fortis is the first major euro zone bank to buckle since U.S. mortgage defaults triggered global financial turmoil last year.Its shares gave up early gains to slide 23.7 percent, while shares in Hypo Real Estate fell over 70 percent.

Meanwhile the UK government said that lender Bradford & Bingley's BB.L branch network will be sold to Spanish bank Santander SAN.MC and the remainder of the group will be nationalised. [ID:nWLA0365]

“The implications of a fallout from (the credit crunch) are far-reaching, there are dozens of quoted banks in Europe, so it would seem unlikely that they would all be unaffected by this,” said Darren Winder, head of macro and strategy research at Cazenove. “There is a contagious effect.”

EYES ON BAILOUT PLAN

Investors were cautious as U.S. lawmakers met to vote on a $700 billion government fund to buy bad debt, worrying that this may not be enough to help stabilise the economy. [ID:nSP372803]

“It is clearly going to improve the flow of credit for the economy but it remains to be seen whether it is large enough,” said Cazenove’s Winder.

Across Europe the FTSE 100 index was down 5.30 percent, Germany’s DAX was 4.23 percent lower and France’s CAC 40 was down 5.04 percent.

Also weighing on the benchmark index were commodity stocks, dragged down by weaker industrial metals prices, with copper MCU3=LX tumbling to its lowest level in nine months.

Anglo American AAL.L, Antofagasta ANTO.L, BHP Billiton BLT.L, Kazakhmys KAZ.L, Xstrata XTA.L were down between 8.3 and 17.5 percent.

“Lower commodity price expectations drive lower earnings expectations,” Deutsche Bank said in a research note.

“There are a few more unsettling weeks to come including: broker downgrades, resolution of government intervention, and weaker Chinese data,” Deutsche Bank said, adding it would be difficult for the mining sector to outperform in the near term.

Meanwhile oil extended its decline, with crude CLc1 falling nearly 7.6 percent to $98.76 a barrel, pressured by gains in the U.S dollar.

BP BP.L, Royal Dutch Shell, RDSa.L and Total TOTF.PA fell between 4.2 and 4.6 percent. (Additional reporting by Brian Gorman, Tyler Sitte, Sitaraman Shankar and Peter Starck; Editing by Erica Billingham)

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