Munich  - The market fallout unleashed by the US mortgage crisis continued to take its toll on the European financial sector with the giant German insurer Munich Re forced Friday to slash its 2008 earnings forecast.

The world's second biggest reinsurer expects earnings this year to come in at "well above" 2.0 billion euros (3.14 billion dollars) compared to a previous estimate of between 3.0 and 3.4 billion euros.

The projection sent Munich Re shares down by more than 10 per cent to about 104 euros.

"The main reason for this is the turmoil on the capital markets, which has led to an appreciable reduction in the group's investment result in the first half of 2008," the Munich-based company said announcing the results.

In particular world's financial markets have been gripped by turbulence over the last year in the wake of the economic uncertainty triggered by the surge in defaults in risky US mortgages.

Announcing the profit warning, the company said it its second-quarter profit had been halved to 600 million euros from an initial estimate of 1.158 billion euros.

However the Munich Re insisted that its long-term goals remained in place.

Munich Re's profit warning is the second in two days by a major German company with carmaker Daimler AG cutting its 2008 earnings forecast Thursday in the face of a slowing world economy, a surging euro and increasing raw material costs. (dpa)