European stocks ended lower on Monday, dragged down by banks that fell on concerns over credit ratings at major U.S. mortgage lenders and by a rise in crude after recent sharp falls, which revived inflation worries.
The pan-European FTSEurofirst 300 index ended down 0.9 percent at 1,158.86 points, falling for a third session in a row.
Banks topped the losers, hit by concerns over the sector after Standard & Poor's warned on Friday it may cut its ratings on the preferred shares and subordinated bonds of Fannie Mae and Freddie Mac.
It cited concerns that U.S. government plans to shore up the mortgage finance companies may subordinate the debt.
Adding to concerns for banks, Citigroup cut its stance on European banks to "underweight" from "neutral." UBS fell 5.5 percent, Royal Bank of Scotland dropped 4.1 percent and Barclays lost 5 percent.
"There is a deep seated problem with many of these banks," said David Buik of Cantor Index in London.
"To call the bottom of the market without the odd little swerve is probably precipitous," he added.
"It's going to be quite a negative month," he said of August.
Adding to the pressure, Citigroup lowered its stance on European banks to "underweight" from "neutral." "Write-downs, earnings downgrades, dividend cuts and capital raising are becoming the norm," the broker said in a note.
HBOS shed 7.3 percent after weekend reports that the bank is due to reveal more asset writedowns when it publishes results on Thursday.
Europe was hit by another wave of bad economic news on Monday, with surveys showing German consumer confidence worse than at any time since recession last struck and yet more house price falls in Spain and Britain.
The week is a crucial one for bank earnings, with results from Santander, Deutsche Bank and UniCredit.
The DJ Stoxx European bank index has lost more than 30 percent so far in 2008, as investors dumped banking stocks on fears over the impact of the credit crisis on balance sheets.
But the market's fall was cushioned by buoyant mining shares, helped by gains in metal prices, while energy stocks rose ahead of key quarterly results in the sector expected this week and as oil recovered from a recent sharp drop.
Royal Dutch Shell, BP and Total added 0.4-1.3 percent.
Among miners, Antofagasta rose 7.1 percent, Rio Tinto added 3 percent and Anglo American gained 2.9 percent.
Crude oil rose towards $124 a barrel, bouncing back from a seven-week low, in what analysts said was technical buying and short covering after a recent selloff.
"The oil price is a lottery," said Ian Richards, European equity strategist at Royal Bank of Scotland.
"We have absolutely no visibility." Airlines, which had recently enjoyed a rally as oil prices fell from record highs, were hammered after low-cost carrier Ryanair posted an 85 percent fall in quarterly net earnings and warned it was unlikely to make any profit this year in a battle against recession and oil prices.
Ryanair tumbled 22 percent, while easyJet lost 8 percent, British Airways fell 4.5 percent, and Air France-KLM dropped 2.2 percent.
EADS, the parent of airplane maker Airbus, was down 4.5 percent.
Among the day's other major losers, TNT sank 7.5 percent after the Dutch mail company reported a surprise drop in quarterly operating profit and said it expected the economy to remain under pressure for the rest of the year.