European shares were down 1.5 percent by mid-session on Thursday as banks retreated after a storming rally the prior day, while miners buckled under losses in metals and a heavily discounted rights issue from Xstrata.
By 1152 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares had fallen to 798.82.
Banks led the losers after the sector, hammered by funding fears in recent weeks, staged a vigorous rebound earlier this week.
Swiss bank UBS (UBSN.VX) fell some 11 percent as traders cited talk of a possible loss of 1 billion Swiss francs ($865.1 million) on trading activities in the fourth quarter. UBS declined to comment.
"If Deutsche Bank (DBKGn.DE) had nasty losses in the fourth quarter of last year, there's no reason believe that UBS won't fall into that same trap," said Heino Ruland, strategist at FrankfurtFinanz.
"I doubt we will have a real chance to see banks in a sustainable recovery soon. They will continue to be extremely fragile," Ruland said. "The world economy is tumbling with a sort of speed we've never seen. (Investors are) very shaky."
Lloyds Banking Group led the losers in Europe, down 12 percent. The stock rocketed more than 50 percent the previous day following positive broker comments from Citi and as fears the bank would be nationalised calmed down.
Barclays (BARC.L) stock dropped 8.7 percent. The recently rattled shares had doubled in value in the first three sessions of the week after the bank on Monday issued a letter denying concerns it would require fresh capital.
MINERS TUMBLE
Miners were standout losers as copper prices dropped about 5 percent and gold also fell.
