LONDON - European shares slid for a fourth day on Thursday, ending steeply lower despite an early rally as bank and oil shares slipped and fears of a global recession hit investors on both sides of the Atlantic.

The FTSEurofirst 300 index of top European shares closed down 2.1 percent at 921.46 points, its lowest close since November 2003.

 
The index has shed more than 15 percent so far this week, placing it on track for its worst week on record. European shares are down 38.8 percent so far this year, hit by a credit crisis that has frozen interbank lending, pushed banks deep into the red and slowed the economy, hitting several industrial sectors.

Banks reversed earlier gains to track U.S. peers which fell on persistent fears that the widening credit crisis will tip the global economy into recession. The drop in financials also followed the expiration of a U.S. ban on short selling.

In Europe Barclays shed 13.1 percent and Santander dropped 3.3 percent. On the upside, battered HBOS shares surged 31.2 percent.

Oil shares tracked crude prices lower, reversing an earlier rally. BP lost 1.8 percent, Royal Dutch Shell lost 3.2 percent and Total went down 3.2 percent.

European shares had rallied for most of the day as the previous session's concerted global rate cut and UK bank bailout had offered brief respite to investors fearing global recession.

"The fear doing the rounds in the market is that the bailouts...even though they are enormous in their scope and size, may not be enough," said Jeremy Batstone-Carr, head of private client research at Charles Stanley in London.

"It's been the most extraordinary five weeks that anybody in the market can remember," he added.

"We're hiding in our trenches with our tin hats and bicycle clips on."

Underlining the severity of the problem, the cost of borrowing overnight dollars remained significantly above the Federal Reserve's new target rate, reflecting financial institutions' demand.

Three month borrowing on interbank markets remained expensive near this week's highs across all currencies and actual lending beyond a week remained frozen.

On top of slashing interest rates, the European Central Bank also halved the premium banks pay for emergency borrowing over its main refinancing rate.

The ECB also said it was raising the rate it would pay banks which deposited excess funds with it overnight, to 50 basis points below its main rate from 100 basis points below it.

UniCredit's Greetfeld said he would like to see the UK bailout plan, which envisages the government taking stakes in banks and guaranteeing bond issues to an extent, replicated in other countries.

The UK's FTSE 100 index ended down 1.2 percent, Germany's DAX index fell 2.5 percent and France's CAC 40 dropped 1.6 percent.

Bucking the general trend, Dexia jumped 16.4 percent after France, Belgium and Luxembourg announced they had agreed to provide it with state guarantees for any new borrowings.

The move was the latest in a series of attempts by governments across the world to stabilise a tottering financial sector, which have included bailout packages in the United States and the UK and the rescue of Fortis in Belgium.

Miners held to their day's gains, however, with Eurasian Natural Resources up 15.8 percent and Antofagasta rising 10.1 percent.

Utilities were standout losers on back of a lower oil price, with E.ON off 10.7 percent.

The oil price is seen by many market participants as an indication for the prices of other commodities such as coal and gas - which in turn are decisive for power prices.

E.ON shares also dropped as concern grows that its $6 billion investment in Russia may not be as profitable as expected after the company exchanged the chief executive of the OGK-4 unit and as a declining Russian stock market could lead to a depreciation of the unit's value.

Other major movers included ArcelorMittal, which reaffirmed its third-quarter profit outlook and jumped 9.1 percent.