LONDON - A key European stock index fell to a lifetime closing low on Tuesday, led lower by oil stocks as crude prices slipped towards $40 a barrel.

The FTSEurofirst 300 fell 1.9 percent to 669.64 points, the lowest close since the index's inception in July 1997. It has fallen for seven of the last eight sessions.

The broader STOXX 600 benchmark fell 1.8 percent, having hit lows not seen since late 1996.

'There is disappointment that the interventionist policies of governments aren't coming together fast enough,' said Mike Lenhoff, chief strategist at Brewin Dolphin.

'The market is being burdened with such huge cash calls and issuance of corporate debt, as well as government stock,' said Lenhoff.

European credit default swap spreads widened sharply on Tuesday, in response to the deteriorating economic climate and growing financial industry losses.

Crude prices, which slumped 10 percent on Monday, failed to stage a recovery and hovered about the $40 mark amid worries about demand in the face of worldwide economic slowdown.

BG Group closed 6 percent lower as its planned takeover of Australian coal seam gas firm Pure Energy moved closer.

BP fell 4.3 percent after announcing it would scale back its near-term oil and gas production growth target, as falling oil prices prompt the company to rethink investment plans.

Total, Royal Dutch Shell and Statoil were between 2.2 percent and 4.8 percent lower.

Bank stocks, among the worst affected by the stock slump that has accompanied the crisis on the world's credit markets, were broadly lower.

HSBC which slumped 18.8 percent after announcing a 12.5 billion pounds rights issue on Monday, fell another 1 percent.

Societe Generale, Lloyds, Credit Suisse and Barclays were down between 2.5 percent and 7.9 percent.

Standard Chartered was a rare gainer among the banks, putting on 7.3 percent after the group said 2008 profit rose 19 percent.


Shares in Danish ingredients group Danisco fell 18.4 percent after the company cut its full-year profit expectations and said it would lay off 200 employees due to lower demand for its products.

Index heavyweight Nestle fell 4 percent.

Across Europe, the FTSE 100 index finished 3.1 percent lower, Germany's DAX was down 0.5 percent, while France's CAC 40 fell 1 percent.

'The uncertainty about the financial ramifications of the bail-out measures for government budgets and the uncertainty as to how the various capital tranches of the banks will be handled in the event of nationalisation are currently weighing on the market,' said analysts at UniCredit in a note.

Wall Street was lower as European bourses were closing. The Dow Jones, S&P 500 and Nasdaq Composite were down between 0.3 percent and 0.7 percent.

Some investors held out hope that U.S. Treasury Secretary Timothy Geithner would shed light on plans to shore up the financial system a day after Wall Street slid to a 12-year low.

His testimony follows an appearance on Capitol Hill by Federal Reserve Chairman Ben Bernanke, who urged bold action action to pull the economy out of a deepening slump, even if it means a surge in U.S. government debt.

'We are better off moving aggressively today to solve our economic problems,' he told the Senate.

(Additional reporting by Sitaraman Shankar; Editing by Andrew Macdonald)