LONDON, March 3 (Reuters) - Banks drove down European shares for a fourth day on Monday as U.S. data did little to dispel concern over the potential for U.S. recession, while HSBC HBSA.L rallied after turning a profit last year.
Financial shares were the worst performers on the broader European market. British mortgage lender HBOS HBOS.L fell almost 8 percent, while Royal Bank of Scotland (RBS.L) shed 3.6 percent and UBS UBSN.VX lost 3.3 percent.
Nationwide U.S. manufacturing data showed factory activity contracted last month, although not by as much as originally feared, which helped equities recover some of the day's losses.
The FTSEurofirst 300 index .FTEU3 dropped 1.3 percent to 1,298.11 points, having fallen by as much as 2 percent earlier in the session.
"The market is absolutely desperate to gauge exactly how quickly the U.S. economy is slowing down and what is the potential threat of inflation," said Henk Potts, a strategist at Barclays Stock Brokers.
HBSC was the top positive weight on the market, rising 3 percent after it reported a 10 percent rise in profit last year, buoyed by growth in Hong Kong and elsewhere in Asia which helped Europe's biggest bank absorb $17.2 billion in bad debts linked to the U.S. housing crisis.
The DJ Stoxx index of European banking shares .SX7P was down 1.6 percent, as Commerzbank (CBKG.DE) fell 3.5 percent amd ING ING.AS shed 2.1 percent.
The FTSEurofirst 300 has fallen by about 14 percent so far this year and is down by about 20 percent from the 6-1/2 year peaks of last July.
Goldman Sachs said in a note that European corporate earnings within the DJ Stoxx 600 index have come in better than expected, but analysts' 2008 earnings estimates have fallen and were likely to be lowered further.
Shares on Wall Street were down. Billionaire investor Warren Buffett on Monday told CNBC he is no longer offering to guarantee $800 billion of municipal bonds backed by MBIA Inc (MBI.N), Ambac Financial Group Inc ABK.N and FGIC Corp, three large bond insurers.
Aside from a few standout gainers, the sell-off in Europe was fairly deep, with declining issues outnumbering advancers by about six to one on the FTSEurofirst.
German truckmaker MAN (MANG.DE) rallied 4.3 percent after carmaker Volkswagen (VOWG.DE) said it would take majority control of Sweden's Scania SCVb.ST. The move ends a stalemate over the future of Scania, which last year fended off a hostile bid from Man.
Scania shares were last down by more than 8 percent, having leapt by about 14 percent in early trade on Monday.
Volkswagen, which now has a controlling voting stake in Scania, says it wants to explore cooperation possibilities with MAN. A combination of MAN and Scania would create Europe's biggest truck maker.
Other gainers included French-listed Airbus parent EADS EAD.PA, which rallied 9 percent after winning part of a $35 billion U.S. Air Force refuelling deal late on Friday in a surprise blow to Boeing (BA.N).
Around Europe, Britain's FTSE 100 .FTSE fell 1.1 percent, Germany's DAX .GDAXI lost 0.9 percent and France's CAC .FCHI shed 1 percent. (Additional Reporting by Sitaraman Shankar and Ana Nicolaci da Costa; Editing by David Cowell)