European shares closed at their lowest level in 3-1/2 months, with banks leading the march down amid worries that a deepening mortgage lending crisis is spreading to the rest of the US economy.

Dublin's ISEQ index closed down 381 points to finish at 9,060, with AIB and CRH both going ex-dividend today  (paying profits to its shareholders) and falling 6%, which accounted for some of the 4% fall in the overall market.

The FTSE dropped 2.6% to close at 6,000 - its largest percentage drop in 10 months.  Banks were among the biggest fallers in both markets, with lower oil prices hitting energy shares in London also.

Meanwhile, Frankfurt's DAX 30 dived 2.6% and the Cac40 in Paris closed down 2.5%.

However, Wall Street recovered some composure with the Dow up 0.4% to 12,125 and the Nasdaq up 0.8% to 2,371 - shortly before the close.

Investors worldwide were worried today about the US property market after news that the number of bad mortgage loans was rising amid deep financial troubles for some companies that lent to  "subprime" borrowers with patchy credit histories.

Only recently has the scale of the potential problem emerged. Sub-prime mortgages totalled $600bn last year, accounting for about one-fifth of the US home-loan market.

Earlier this morning, Asian stocks also crumbled, with Tokyo's Nikkei falling 2.9% to 16,677, its second biggest daily percentage fall this year.