European financial stocks suffered sharp falls on Monday, as worries about the extent of the crisis in the sector deepened after finance ministers failed to reach a consensus on how to react.

Dizzying falls across the sector came across the continent and led to big overall losses on leading indices.

London's FTSE 100 fell 5.6 per cent, or 281 points, to 4,699.6. The renewed fall took the benchmark index 100 under its closing low point for the year and beneath the 4,700-point mark for the dirst time since 2004. Germany's Xetra Dax 30 was 4.5 per cent weaker at 5,539.4 and the CAC 40 in Paris tumbled 4.7 per cent to 3,890.1. Overall, the FTSE Eurofirst 300 surrendered 4.2 per cent to 1,043.7, a loss of 46 points.

London's single biggest faller was once more the UK's biggest mortgage lender, HBOS, due to merge with fellow bank Lloyds TSB in a rescue deal put together during the crisis. HBOS fell 15 per cent to 170.2p and Lloyds lost 4.9 per cent to 275.8p. Royal Bank of Scotland fell 9.8 per cent to 168.1p.

"Another Monday, another banking crisis. Just when the market thinks it has found a base level, there's another jolt to the system and we lose another 200 points off the FTSE 100. Black Mondays used to be a once-a-decade event - now they're coming along more regularly than a London bus," said Manoj Ladwa, senior trader at ETX Capital

Anglo Irish Bank fell 25 per cent to €3.8 whilst Allied Irish Banks tumbled 18.7 per cent to €6.10. Bank of Ireland lost 19 .5 per cent to €3.90.

The list of the biggest falling shares on the FTSE Eurofirst 300 read like a rundown of the continent's biggest banks. Switzerland's UBS fell 10.5 per cent to SFr21.50, Belgium's Dexia was 7.5 per cent weaker at €7.50, and Commerzbank in Germany lost 15.4 per cent to €11.90. Deutsche Bank was 6.2 per cent lower at €49.80 and France's SocGen lost 6.8 per cent to €64.

Shares in UniCredit of Italy fell 9 per cent to €2.81 before being suspended due to excessive volatility the day after it approved plans to boost captial by €6.6bn. Shares opened about 15 per cent lower in Milan.

The confusion over how governments planned to deal with the crisis came after Germany offered its savers a guarantee covering all deposits over the weekend as a deal to save Hypo Real Estate, the mortgage lender, faltered before an accord to inject a further €15bn into the lender took the cost of its rescue to €50bn.

Germany's move to underwrite savers' funds put extra pressure on other European governments to make similar guarantees after Ireland was the first to take the controversial step last week. A meeting of European leaders over the weekend failed to produce a consensus on how to react.

Alistair Darling, UK chancellor, is considering a taxpayer-funded recapitalisation of Britain's banks, amid signs of cross-party and central bank support for an effective part-nationalisation of the sector.

Worries about the state of wholesale credit markets, with the reluctance of banks to lend to each other at the heart of the crisis, lingered even after the passage of the US government's $700bn bail-out package.

"The Fed's bail-out plan may have been passed on Friday but so far there's been no real reaction in credit markets and because of this the natural assumption is going to be that the measures won't work, even if such a call is rather premature, " said Matt Buckland at CMC Markets.

Oliver Stevens, head of dealing at IG Markets, said: "The question now seems to be how bad a recession we are in not whether we are going into a recession. Fear and uncertainty are likely to continue to rule today and how low we go is anyone's guess."

There was also a sense that European indices had further to fall even before the weekend's events brought further pressure to bear. The FTSE Eurofirst 300 ended last week down 1.4 per cent with the FTSE 100 losing 2.1 per cent in the period. In New York, the S&P 500 was 9.4 per cent lower over the same 5 sessions and the Dow Jones Industrial Average lost 7.3 per cent.

Many Asian indices were at their lowest levels since December 2005 as worries about the extent of the damage done by the crisis intensified. The MSCI Asia-Pacific ex-Japan index was on track for its biggest daily decline since January 2008, down 5.3 per cent.

As risk aversion rose, the cost of insuring European corporate bonds from default climbed. The iTraxx Crossover index of mostly high-risk, junk-rated bonds widened 21 basis points to 631bp.

Currency trading also reflected a highly risk-averse tone, with the low-yielding safe haven of the Japanese yen rising rapidly. Those currencies most at risk were high-yielders, usually at play in the carry trade, a strategy where investors trade on interest rate differentials.

The New Zealand and Australian dollars, supported by some of the highest interest rates in the developed world, suffered the biggest sell-off. Against the yen, the NZ dollar fell 3 per cent to Y67.23, while the Aussie slid 4.3 per cent to Y77.59.

The pound fell 2 per cent to Y182.14 and was down 0.6 per cent against the dollar to $1.7573. The euro fell 2 per cent against the yen to Y140.73 and slipped 0.7 per cent against the dollar to $1.3581.

Government bonds also offered havens from the turmoil. The price of the benchmark 10-year US Treasury rose as yields fell - down 6.5 basis points to 3.53 per cent. The yield on the 10-year UK gilt fell 10 basis points to 4.29 per cent.

Oil prices continued to fall on worries about the knock-on effects of the crisis on global growth. Nymex WTI fell $3.50 to $90.38 a barrel, having earlier lost the $90 mark briefly for the first time since February.