Europe Stocks Drop on Banks, Oil Shares

European shares fell more than 2 percent on Thursday as global growth concerns hit oil shares and banks slipped in sympathy with U.S. peers that took a battering on worries over the strength of their balance sheets.

The pan-European FTSEurofirst 300 index unofficially ended down 2.1 percent at 1,156.15 points, wiping out a 1.7-percent gain notched up in the previous session.

The oil sector topped the losers and took 3.5 points off the index.

Total, BP and Royal Dutch Shell all shed between 2.2 and 3 percent after U.S. inventory data on Wednesday showed a surprise rise in gasoline stocks, which can point towards a decline in consumer demand.

Wall Street rose but U.S. financials suffered as investors fretted over whether the U.S. mortgage providers Freddie Mac and Fannie Mae could obtain the capital they needed, while Lehman Brothers tumbled on talk that bond fund Pimco was reducing business with the bank.

A Lehman spokesman declined to comment, while a Pimco spokesman said Pimco continued to trade with Lehman.

"A lot of eyes are on Lehman at the moment. That's the kind of thing that puts the fox in the hen coop as far as the financials are concerned," said Jeremy Batstone-Carr, head of private client research at Charles Stanley in London.

Among European banks, Santander shed 1.9 percent, HSBC lost 1.4 percent and UBS dropped 2.4 percent.

"One thing is pretty certain and that is that we are some distance from the financial sector being out of the woods," Batstone-Carr added.