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European Shares Close Lower on Cyprus Fears

European shares closed lower on Thursday amid a selloff spurred by concerns over a banking collapse in Cyprus.

The FTSEurofirst 300 Index provisionally closed down 0.7 percent after a senior euro zone official, quoted by Reuters news agency, voiced fears that Cyriot banks could face being wound down if a resolution is not found.

This eventuality would mean uninsured depositors would be wiped out and could lead to a euro zone exit for the country, the official said.

"At the end of the day it is their own choice," the official told the news wire.

Investors watched developments in Cyprus closely on Thursday as the country's leaders considered other options to avert a looming default which could involve nationalizing pension funds, a levy on deposits over 100,000 euros and some form of help from Russia.

Michael Sarris, the Cypriot finance minster resumed talks with Russian officials to strike a deal that could include cooperation on banking and natural gas reserves. The European Central Bank set Cyprus a deadline of Monday to agree a bailout plan, threatening to cut off funding to the islands' cash-strapped banks if a program is not agreed by then.

Banks have been ordered to stay closed until next Tuesday and Cyprus is considering some form of capital controls to prevent capital flight once they re-open. The country's stock exchange will also be closed on both Thursday and Friday.

Markets had edged lower during morning trade as data released showed a fall in business activity. Flash composite data for the euro zone fell to 46.5 in March from February's 47.9. The figure was lower than estimates by a Reuters poll of economists.

Germany showed that business expansion had lost momentum. The figure for the month fell to 51.0 from 53.3 in February. For France, the figure dipped to 42.1 for March from 43.1 in February - which continued to mark a contraction in the sector.

In stocks news, Germany-based chemicals group Lanxess reported a weak outlook for its first quarter due to lower demand for synthetic rubber from a weak tyre and auto market; shares traded lower by 6.29 percent.

Swedish retailer Hennes & Mauritz (H&M) announced earnings that were broadly in line with estimates, shares edged higher by 0.97 percent.

U.K. retailer Next reported its year-end earnings highlighting a 9 percent profit rise but warned of a quiet start to the trading year; shares traded 1 percent higher.

Another retailer Hermes reported earnings that beat estimates and posted a record profit; shares edged 0.8 percent higher.

Eurotunnel Group eyed a slight growth in revenue for the year ahead and said it would hand investors a 50 percent dividend hike; shares led the Euro Stoxx 600 Index climbing by 2.91 percent.