European equities fell sharply on Tuesday as profits were taken following seven sessions of gains on the FTSE Eurofirst 300.

Banks suffered the heaviest falls as fears over the impact of subprime and credit market losses on future earnings weighed on sentiment.

The pan-European benchmark index moved 1.7 per cent lower to 1,490.25.

Frankfurt's Xetra Dax outperformed its rival indices after a stronger-than-expected survey of business sentiment in Germany.

The Dax fell 0.7 per cent to 7,430.24, supported also by gains for Eon, the index's biggest weighted stock.

The utility gained 1.2 per cent to €119.30 on reports that the European Union plans to grant temporary exceptions for new infrastructure projects, one of which might be the joint Gazprom-Eon gas pipeline under the Baltic Sea.

But German mail and logistics group Deutsche Post fell 2.8 per cent to €20.88, after Goldman Sachs added the stock to its "conviction sell" list. Goldman said German mail liberalisation was likely to proceed without delay in 2008 and would lead to volume losses and declines in revenue.

Of the banks, France's were the hardest hit, ensuring the CAC 40 index underperformed its main rivals, falling 2.1 per cent to 5,474.17.

Bear Stearns cut its 2009 earning forecasts for the four French banks it covers by 7 per cent. The broker said recent capital markets volatility had had a negative impact on the growth outlook for their investment banking and asset management businesses.

Natixis, which has a 2.5 per cent stake in IKB, the German bank that nearly collapsed from subprime-related losses, fell 3.1 per cent to €14.81. Natixis on Wednesday reports its first interim results since it was formed last year by the merger of the investment arms of Caisse d'Epargne and Banque Populaire. Although Bear Stearns raised its rating on Societe Generale to "outperform", the stock fell 2.9 per cent to €116.54, while BNP Paribas shed 3.4 per cent to €75.86. Credit Agricole fell 2.8 per cent to €26.97.
Renewable Energy, the darling of the solar energy sector, fell 4.6 per cent to NKr207 on profit taking after rising more than 16 per cent over the previous seven sessions. The Norwegian company said it was investing €10m in a solar power plant in South Korea.

Vestas Wind Systems, another alternative energy favourite, fell 3.8 per cent to DKr359.

Scania fell 5.6 per cent to SKr151 on rumours that tie-up talks between the Swedish truckmaker, its German rival MAN and Volkswagen, the largest shareholder in both companies, were likely to be scuppered. Investor AB, the Swedish fund that also has a large stake in Scania, was instrumental in foiling MAN's attempted hostile takeover last year, and was reported to be blocking talks over a three-way alliance.

Shares in MAN fell 2 per cent to €100.36, while Volkswagen lost 0.5 per cent to €149.20.

Cosmote, the Greek mobile telecoms operator, posted a forecast-beating rise in first-half net profit after the market close. Its shares were up 0.5 per cent to €22.48 ahead of the result, while its parent company Hellenic Telecom, also known as OTE, was the Eurofirst 300's biggest gainer, up 1.8 per cent to €23.80.

Nordic stock market operator OMX edged 0.2 per cent higher to SKr244 in spite of a downgrade from WestLB.

The broker said it saw "no promising speculative up­side" as the shares were trading at a premium to the highest offer from Borse Dubai.