European shares were on track for their third straight quarterly loss on Monday beset by unrelenting worries about the financial sector while fiscal year-end demand from Japanese corporates helped prop up the ailing dollar.
Underscoring tight credit conditions, particularly into the end of the month and quarter, the European Central Bank announced it would inject extra overnight funds to money markets.
In contrast, commodities such as copper were headed for their
strongest quarterly performance in at least 18 months with demand seen largely remaining intact despite worries about global growth.
Copper futures in London gained 0.9 per cent.
Investors dumped bank shares on renewed fears over asset writedowns and after Oppenheimer & Co analyst Meredith Whitney warned last Friday of more dividend cuts and forecast a further 25 per cent drop in US banking shares. Swiss bank UBS dropped more than 3 per cent.
"This subprime crisis isn't over yet and we might see more writedowns from banks when they report their first quarter results, and that obviously is entangling stock markets," said Franz Wenzel, strategist at AXA Investment Managers in Paris.
Suggesting heightened risk aversion, the iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, widened about 18 points.
The FTSEurofirst 300 index of top European shares fell nearly 2 per cent, with Germany's DAX and Britain's FTSE both also down nearly 2 per cent.
"Europe Equity Funds have now posted outflows in 29 of the past 30 weeks," said fund tracker EPFR Global.
"Investors are also betting that European banks lag their US counterparts in identifying, admitting to and dealing with the bad debt spawned by the US sub-prime mortgage market."
In Asia, shares posted their worst quarterly performance in over five years. Japan's Nikkei slid 2.3 per cent finishing the fiscal year with its worst quarterly performance since 2001. MSCI's measure of other Asian stock markets fell 1 per cent.
MSCI world equity index lost 0.8 per cent.
DOLLAR EDGES UP
The dollar firmed against a basket of major currencies, drawing support from strong quarter-end demand, but it held near a record low against the euro as investors awaited more clues on the health of the US economy from data due later this week.
Year-end activity from Japanese investors and corporates and life insurers gave the dollar a slight lift, traders said.
"The focus on US data will confirm whether the downtrend is accelerating or not and what the reaction of the Fed could be on the back of such data," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.
"Current levels present clear (dollar) selling opportunities and I'd be very surprised if we now see the dollar stabilising or recovering from these levels."
US crude slipped 44 cents to $105.18 a barrel, dragged lower by the restart of a crude pipeline system in Iraq, while gold edged up towards $940 an ounce, held back by the fall in oil prices.
Weakness in stocks helped underpin demand for safe-haven government bonds, pushing yields lower. The 10-year Bund yield shed 2.4 basis points to 3.920 per cent, while the benchmark 10-year yield for US Treasuries was steady at 3.473 per cent.
Bank worries knock European stocks