European shares fell on Tuesday, weighed down by banks and insurers after UBS sought to purge itself of the impact of the credit crisis and Swiss Re announced another round of writedowns.
UBS shares fell 4.5 percent and were the top losers in the broader European equity market.
Investors were concerned that the credit crisis, which has visited Europe's biggest writedowns on UBS,had badly damaged the bank's earnings power, as signaled by a sharp slowdown in new money entrusted to it by its large base of wealthy clients.
Swiss Re, the world's largest reinsurer, weighed on the insurance sector, after reporting a steep drop in first-quarter net profit that took nearly 5 percent off its shares.
Weighing further on the market was U.S. home financing group Fannie Mae, which cut its dividend and unveiled plans to raise $6 billion in fresh capital after a third quarterly loss.
The FTSEurofirst 300 index of top European shares closed down 0.5 percent at 1,351.25, having risen from a decline of as much as 1.1 percent as stocks on Wall Street pared losses.
The index has rallied about 13 percent since hitting near three-year lows in mid-March.
"A bear market rally usually lasts 35 days and (rises) an average of 12 to 13 percent; that is exactly what we've seen on the S&P, so this would be it," said Philippe Gijsels, a senior equities strategist at Fortis Bank in Brussels.
"If this is a bear market rally, it should stop around now," he said.
UBS was the largest individual drag on the European market.
The company said it would cut 5,500 jobs in one of the biggest purges seen so far in the financial markets crisis and also said it had a preliminary deal with U.S. asset manager BlackRock to sell a $15 billion portfolio of subprime mortgages.
UBS shares have virtually halved in value since last June.
The DJ Stoxx banking index was down 1.2 percent as shares in HSBC, Societe Generale and Credit Suisse fell between 1.5 and 2.6 percent.
Meanwhile, first-quarter net profit at Swiss Re dropped by half, a bigger fall than expected, and the world's biggest reinsurer made fresh credit writedowns of 819 million Swiss francs ($779.3 million).
Munich Re shares fell 1.8 percent, while Zurich Financial lost 1.6 percent, and Allianz and AXA fell between 1.9 and 2.1 percent.
The European pharmaceutical sector fell 1 pct, as drugmaker Shire slipped 4.6 pct after analysts said data suggested one of Shire's biggest drug hopes was not capturing as big a market share as expected.
Roche, GlaxoSmithKline and AstraZeneca fell between 2 and 2.4 percent.
Among major gainers, Tullow Oil surged 24 percent after the company said its well offshore Ghana had hit a significant column of light oil, indicating its Jubilee field in the area is larger than earlier thought.
The move supported the DJ Stoxx European oil and gas sector index, which just managed to resist the overall downward trend in the market and a slight easing in the price of oil from a new record high above $120 a barrel.
Total and Royal Dutch Shell were roughly flat, while BP fell 0.3 percent.
The DJ Stoxx basic resources index, which includes miners, rose 2.6 percent in step with firmer precious and base metal prices.
London-listed Xstrata reported a 2 percent rise in first-quarter copper output, while nickel production fell 15 percent.
Xtstrata shares rose 2.7 percent.
Rio Tinto was up 4.1 percent, and BHP Billiton rose 3.8 percent.