AFP - European shares sank on Tuesday as investors digested a huge overhaul of British state-controlled banks Lloyds and Royal Bank of Scotland, while falling metals prices hit the mining sector.

In late morning European trade, London's FTSE 100 index of top shares tumbled 2.12 percent to 4,996.53 points, diving under the psychological 5,000 barrier for the first time since October 5.

Frankfurt's DAX 30 shed 1.88 percent to 5,328.73 points and the Paris CAC 40 lost 2.25 percent to 3,557.66 points near the half-way mark.

The DJ Euro Stoxx 50 index of top eurozone shares plunged 2.25 percent to 2,700.75 points.

Britain said it would force Royal Bank of Scotland (RBS) and Lloyds to sell assets in a bid to revive the sector and address EU concerns, and inject another 30 billion pounds (33 billion euros, 49 billion dollars) into the pair.

The government hopes to create new banks, promote competition and guarantee more lending to businesses and individuals as a result of the assets sale, which comprises 10 percent of Britain's troubled retail banking market.

"The focus has been on the banking sector with RBS taking an additional 25.5 billion pounds from the government and Lloyds confirming its rights issue," said IG Index analyst David Jones.

"The biggest losers on the day overall, though, are mining stocks as once more concerns about global demand and weaker metal prices have hit this ever volatile sector."

Under the plans, the British government will pump another 25.5 billion pounds into RBS, which in turn will place 282 billion pounds of high-risk debts into the government's toxic asset insurance scheme.

As a result, the government's economic interest in RBS will climb to 84 percent.

In London trading on Tuesday, RBS shares plunged 5.08 percent to 36.69 pence.

However, Lloyds stock rose 1.20 percent to 86.02 pence as the group also said that the record rights issue would allow it to avoid taking part in the state toxic asset insurance plan.

Lloyds unveiled fundraising plans including a 13.5-billion-pound rights issue -- which would represent Britain's biggest-ever sale of new shares to existing shareholders.

The government said it would take part and maintain its 43-percent stake in Lloyds.

In Asia on Tuesday, Hong Kong plunged 1.76 percent, the second consecutive day of falls, as investor confidence remained low despite a pick-up on Wall Street. The Japanese stock market was closed for a public holiday.

New York stocks rose in hesitant trade on Monday after a surprise profit reported by Ford Motor Co. and a strong factory sector survey boosted sentiment after last week's drubbing.

The Dow Jones Industrial Average climbed 0.79 percent to end at 9,789.44 points, coming off a 2.6 percent slide for the blue-chip index last week.