European stocks fell sharply to a new one-month low on Tuesday, with banks suffering after poor results from UBS (UBSN.VX) and a shake-up of the UK retail banking sector.

At 1144 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was down 1.9 percent at 961.30 points and had hit a one-month low of 959.11 points earlier in the session.

The European benchmark is still up nearly 49 percent from its lifetime low of March 9, as several major economies have come out of recession.

But the banking sector .SX7P fell 3.8 percent on Tuesday, hitting a more than two-month low and giving back some of its recent hefty gains.

UBS slumped 9 percent after the Swiss lender posted a higher-than-expected accounting charge and withdrawals at all its key divisions pushed it into another quarterly loss. It said it did not expect an immediate recovery of client inflows.

Shares of Lloyds Banking Group (LLOY.L) gained 1.3 percent after it launched a record 13.5 billion pounds ($22 billion) rights issue and, along with rival RBS (RBS.L), agreed to sell off businesses to limit their reliance on government support. RBS was down 7.1 percent.

Other banking heavyweights to drag the sector lower included BNP Paribas (BNPP.PA), Banco Santander (SAN.MC), Deutsche Bank (DBKGn.DE), HSBC (HSBA.L) and Societe Generale (SOGN.PA), down between 3.3 and 5.6 percent.

Euro zone government bond futures climbed to their highest levels in over two weeks while U.S. T-note futures extended gains after the European Commission forecast up to 400 billion euros ($585.2 billion) banking sector losses in 2009-10.

But the Commission also forecast that the EU economy would expand by 0.7 percent in 2010.

The UBS results are clearly not positive, and then there's the forecast in losses from the EC, said Giuseppe-Guido Amato, strategist at Lang & Schwarz.

However, he pointed to underlying reasons for markets to rise. Macro data is good and, in company news, earnings are surprising on the upside more than disappointing. But the market refuses to go up. A 10 percent correction would be no surprise.

Heavyweight energy shares also dropped, with crude prices CLc1 falling more than 1 percent to $77 a barrel.

Total (TOTF.PA), ENI (ENI.MI), BP (BP.L), BG (BG.L), Repsol (REP.MC) and StatoilHydro (STL.OL) fell between 1.5 and 2.6 percent.

With metals prices falling, miners to suffer included Anglo American (AAL.L), Antofagasta (ANTO.L), BHP Billiton (BLT.L), Fresnillo (FRES.L), Kazakhmys (KAZ.L), Lonmin (LMI.L), Rio Tinto (RIO.L), Vedanta (VED.L) and Xstrata (XTA.L), down between 2.6 and 5.1 percent.

Across Europe, Britain's FTSE 100 .FTSE, Germany's DAX .GDAXI and France's CAC-40 .FCHI were between 1.9 and 2.2 percent lower.


BMW (BMWG.DE) dropped 6.4 percent after the German automaker's third-quarter results missed expectations as sales and profit margins shrank. The poor results hit the auto sector, with Renault (RENA.PA) down 1.9 percent and Daimler (DAIGn.DE) down 4 percent.

Swiss Re (RUKN.VX) was a rare bright spot, up 6.6 percent after the reinsurer beat profit forecasts and said it had strengthened its capital.

Metro (MEOG.DE) gained 2.1 percent after the German retailer posted solid third-quarter results, which analysts said showed the success of the company's cost-cutting efforts.

Later, investors' attention will switch to the United States with factory orders and durable goods data expected at 1500 GMT. ($1=.6835 euros)