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Euro Shares Slump on Fresh Financial Woes

European shares fell on Friday as financial stocks were hit by yet another negative development in the sector, more than offsetting modest gains for heavyweight energy shares on the back of higher oil prices.

The FTSEurofirst 300 index of top European shares closed unofficially with a loss of 2.5 percent at 1,127.89 points -- its lowest close since June 9, 2005, according to Reuters data.

The benchmark lost 3 percent for the week, leaving it 25 percent down year-to-date and 31 percent below the multi-year peak set last year.

"The market has been beaten to its knees and the downturn will probably continue," said Christian Schmidt, analyst at German bank Helaba.

Investors on both sides of the Atlantic were rattled by a report that the U.S. government was considering taking over home financing providers Freddie Mac and Fannie Mae, both threatened with capital shortages from mounting losses from loan delinquencies and foreclosures.

In Europe, French bank Credit Agricole fell almost 10 percent and domestic rival Societe Generale dropped 7 percent.

Royal Bank of Scotland lost 8.6 percent after news that Zurich Financial Services had pulled out of the auction for RBS's insurance business.

Zurich Financial shares jumped 4.2 percent.

Energy stocks rose -- with Total gaining 0.7 percent and Royal Dutch Shell putting on 0.3 percent -- as the price of U.S. crude oil spiked up to over $147 a barrel before easing as Europe's stock markets closed.

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