Frankfurt - European stock markets remained jittery on Wednesday after the US central bank's bailout of insurance giant American International Group (AIG) failed to impress investors.

After opening sharply higher in the wake of the Federal Reserve's 85-billion-dollar rescue action, French shares dipped into the red following Wall Street's weak opening.

At mid-afternoon the Paris Bourse's benchmark CAC 40 had fallen by 0.05 per cent, to 4,085.53. Insurance giant Axa still led the winners, up by 2.66 per cent to 20.29 euros, while banking shares were managing to stay in the black.

Societe Generale was up by 0.63 per cent, to 56.32 euros, and Credit Agricole, France's largest retail banking group, had gained 0.12 per cent, to 12.09 euros.

By Wednesday afternoon, early gains in German share prices had melted away as investors nervously eyed weak Wall Street prices.

The bellwether DAX index ran at 5,956, 0.15 per cent down from Tuesday's close. The AIG bailout had prompted a short-lived rally during the morning to 6,035. A commentator on N-TV television said a slide in the value of US bank Morgan Stanley then alarmed the markets.

Shares in Germany's top insurance group, Allianz, were trading 1 per cent lower at 97.11 euros, while banks also weakened. Deutsche Bank stock slid 1.3 per cent compared to Tuesday to 51.05 euros.

The picture was the same in London where the Financial Times Index rose for the first time this week, during morning trading, only for it to slip back by mid-afternoon.

The FT-Index was 0.04 per cent down at 5,023.50 after earlier gaining nearly 70 points from Tuesday's close to reach 5091.7 at noon.

Early market confidence was also helped by news of merger talks between Lloyds TSB bank and HBOS, the leading British mortgage lender which had seen its share price drop by up to 50 per cent in the wake of the Lehman Brothers debacle.

Confirmation of the merger talks helped HBOS shares recover in mid-session trading, when shares rose by 3 per cent, reaching 187.2 pence.

Llodys TSB, whose merger ambitions, if realised, would create a new banking giant in Britain, saw its share price rise by 18 per cent to 331.25 pence.

Barclays bank, which earlier Wednesday confirmed it was buying some of the core assets of Lehman Brothers in the US, registered a 15-per-cent rise in its share price to 
354.25 pence.

In Russia, the country's two leading stock exchanges halted trading for the second day Wednesday as banks appealed to the finance ministry for emergency loans amid global market turmoil.

The rouble-denominated Micex fell 3.09 per cent before trading was halted and the dollar-denominated RTS plunged 6.39 per cent in its first two hours of trading.

The RTS index lost 57 per cent since soaring to record heights in May.

Banks were worst hit as the market experienced a liquidity squeeze. State-owned financial giant Sberbank dropped 6.1 per cent, to 32.55 rubles, and Russia's second-largest bank was down 14 per cent to a record low.

The global financial crisis has cost Dutch banks more than 16 billion euros (22.64 billion dollars) since August 2007, the Dutch Central Bank (DNB) said in its quarterly report released Wednesday.

The effects of the crisis on Germany have been moderate so far, Chancellor Angela Merkel told parliament, but warned that problems might arise in the future.

"An open economy like Germany's won't remain completely unaffected by this," she said.

The decision to rescue AIG was the latest in a series of interventions by the federal government to stave off collapses in the US finance industry amidst a record rate of home foreclosures that has decimated Wall Street's market for mortgage-backed securities. (dpa)