European equities lost ground on Thursday, ending at their lowest close in six weeks as persistent credit fears continued to pull banking stocks lower.
But the drop was limited by a rally in mining shares, spurred by BHP Billiton's bid for Rio Tinto.
Rio, which rejected the all-share proposal from BHP Billiton as too low, jumped 22 percent, while BHP dropped 5.7 percent.
Surging shares of Siemens, up 8.3 percent, also helped cushion the fall. The industrial group delivered stronger-than-expected quarterly results, raised profitability targets and announced a 10 billion-euro share buyback program.
The FTSEurofirst 300 index of top European shares closed 0.5 percent lower at 1,535.81 points, after falling to as low as 1,520.88 earlier in the session.
European shares have lost 3.8 percent already this month on growing fears that financial institutions have not yet revealed the full impact of the debacle in the U.S. subprime mortgage debt market in their books.
"There are some bombshells going off out there, particularly in the U.S., which aren't assisting matters. We're lacking clarity at the moment so people will fear the worst until we get some reassurance around exposures and likely writedowns and impacts," said James Hutson, analyst at Keefe, Bruyette & Woods.
Morgan Stanley said on Wednesday it had suffered a $3.7 billion loss due to subprime exposure and Merrill Lynch said its total exposure to risky collateralized debt obligations and subprime mortgages was bigger than earlier disclosed.
"Bad news momentum is continuing to build in the global markets and the emphasis remains on risk aversion, safe haven, and flight to quality," Bear Stearns analysts wrote in a note.
Banking shares took another beating, with Royal Bank of Scotland and Barclays both losing 5.3 percent.
Dutch-Belgian lender Fortis, also hit by weak third-quarter earnings, tumbled 7.1 percent.
Insurer Axa shed 2.9 percent after its nine-month sales showed signs of a slowdown in the third quarter.
But the biggest blue-chip decliner in Europe was brewer InBev, which sank 10 percent after posting profits below expectations.
Mining shares surged on news of the bid from BHP Billiton, the world's biggest miner, for the third largest Rio, which would create a $300-billion-plus mining giant.
Anglo American jumped 15 percent and Xstrata surged 11 percent.
Analysts said the move reflected bullishness about the sector's prospects.
"It shows confidence within the mining industry about the global economy. This is clearly a statement of confidence from a major component of one sector that wasn't lacking confidence anyway," said Tim Rees, a fund manager at Insight Investment.
BoE, ECB Decisions Widely Expected
Also on the upside, Deutsche Postbank surged 13 percent after it nearly tripled quarterly net profit and said the 61 million euros in charges it has taken against its subprime investments were sufficient for risks.
The market did not budge after the Bank of England kept rates steady at its rate-setting meeting, while the European Central Bank also kept rates on hold at 4.0 percent, two widely expected decisions.
"The ECB are at an impasse on policy, caught between inflation worries in the short term and longer run fears about a sharper downturn in growth next year. The impending Eurozone slowdown and the strong euro should eventually prevail in favor of lower rates early next year," Bear Stearns analysts wrote.
ECB President Jean-Claude Trichet said the latest data confirmed that inflation risks were on the upside and added that monetary developments needed very careful monitoring.