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 in stock.

Germany's blue-chip DAX fell 4 percent, while the Paris bourse lost 4.9 percent and the London Stock Exchange was down more than 4 percent 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 percent to 15.11 euros by mid-afternoon, as the DAX index of the top 30 shares fell 4.0 percent to 5987 -- its lowest for nearly two years.

Deutsche Bank was off 8.7 percent at 52.29 euros, Deutsche Postbank down 8.6 percent at 39.20 and insurer Allianz was off 8.6 percent 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 percent and 13.79 percent respectively.

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

In mid-afternoon, the Paris Bourse's benchmark CAC 40 had lost 4.94 percent, 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 percent, as shares in the Royal Bank of Scotland (RBS) fell by more than 12 percent.

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

In Madrid, the country's two biggest banks, Santander and Banco Bilbao Vizcaya Argentaria (BBVA), were down 3.44 and 3.53 percent 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 percent, 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 percent, while in Milan, Italy's two largest banks, Unicredit and Intesa San Paolo, fell 5.54 and 4.3 percent respectively.

The European Central Bank pumped €30 billion euros ($43 billion) 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/Expatica