Frankfurt - Shares on European markets nosedived on Monday in financial turmoil triggered by the collapse of one of the biggest US investment banks and the sale of another.

Lehman brothers filed for bankruptcy protection after frantic negotiations throughout the weekend failed to produce a buyer. Hours earlier, Merrill Lynch agreed to be bought out by Bank of America Corp for 50 billion dollars in stock.

Germany's blue-chip DAX fell 4 per cent, while the Paris bourse lost 4.9 per cent and the London Stock Exchange was down more than 4 per cent by mid-afternoon.

On Wall Street, a 300-point drop on the Dow Jones Industrial Average in the opening 10 minutes did little to calm market jitters. In nearly all cases banking shares were hardest hit.

In Frankfurt, Commerzbank fell most, declining 13.6 per cent to 15.11 euros by mid-afternoon, as the DAX index of the top 30 shares fell 4.0 per cent to 5987 - its lowest for nearly two years.

Deutsche Bank was off 8.7 per cent at 52.29 euros, Deutsche Postbank down 8.6 per cent at 39.20 and insurer Allianz was off 8.6 per cent at 101.13.

Finance Ministry spokesman Torsten Albig shrugged off the pessimism, saying the crisis triggered by the Lehman collapse was "manageable" as far as Germany was concerned.

"German financial institutions in their totality are recognizably not as involved as US and other Anglo-Saxon institutions," he said, characterizing the crisis as "centrally American."

In Paris, the big losers of the day were the banks Societe Generale and Credit Agricole, which were down 12.51 per cent and 13.79 per cent respectively.

The shares of two other banks, Dexia and BNP Paribas, fell by 12.10 and 11.54 per cent, while insurance giant Axa lost 11.53 per cent of ts value.

In mid-afternoon, the Paris Bourse's benchmark CAC 40 had lost 4.94 per cent, to stand at 4,118.64.

British banks were also hard hit as the London Stock Exchange's Financial Times Index slumped 247 points to 5,169 by mid-afternoon.

The share price of Britain's biggest mortgage lenders, Halifax Bank of Scotland (HBOS), was down by about 10 per cent, as shares in the Royal Bank of Scotland (RBS) fell by more than 12 per cent.

Barclays, which had been one of the front-runners in efforts to rescue Lehman Brothers, saw its share drop by 6 per cent.

In Madrid, the country's two biggest banks, Santander and Banco Bilbao Vizcaya Argentaria (BBVA), were down 3.44 and 3.53 per cent respectively during the morning session.

On Nordic bourses, shares in the four main banking groups declined, with Skandinaviska Enskilda Banken (SEB) and Handelsbanken losing some 10 per cent, although Swedish banking groups have said they have not been exposed to the troubled subprime US mortgage market.

In Austria, Erste Group Bank AG and Raiffeisen International Bank- Holding AG both lost more than 4 per cent, while in Milan, Italy's two largest banks, Unicredit and Intesa San Paolo, fell 5.54 and 4.3 per cent respectively.

The European Central Bank pumped 30 billion euros (43 billion dollars) into the eurozone money market in a one- day refinancing operation Monday in response to the crisis in the US banking sector.

The ECB said it was watching liquidity developments in the eurozone closely and was ready to contribute to ensuring conditions for an orderly money market.

The Lehman collapse follows more than a year of turmoil arising from the collapse of the US housing bubble and a high rate of mortgage defaults, which undermined Wall Street's market for mortgage-backed securities. (dpa)