[MILAN] European shares fell on Monday, with banks making their biggest two-day loss on record as uncertainty over Britain's decision to leave the European Union continued to rock global markets.
Spanish stocks outperformed after a general election raised hopes the country could solve a political stalemate, even though it was not immediately clear what kind of majority could be formed.
The pan-European STOXX 600 fell 4.1 per cent after suffering a 7 per cent drop, its biggest one-day fall since 2008, on Friday, the day after the referendum in which the UK voted to quit the EU.
Europe's bank stocks index fell 7.7 per cent, wiping out more than one-fifth of its value in two days and ending just a handful of points above lows reached at the height of a euro zone debt crisis at the end of 2011.
Analysts said Britain's exit from the EU would likely put more pressure on bank earnings, already stretched by ultra-low interest rates, low growth and a pile of bad debt.
"Brexit is likely to have lasting implications on the outlook for the European banking sector," Deutsche Bank said, recommending clients to avoid banks in Britain and Spain and underweight banks in Italy.
Royal Bank of Scotland and Barclays fell 15 and 17 per cent respectively, while among other top bank losers were Bank of Ireland, down 21 per cent, and Intesa Sanpaolo, which fell 11 per cent.
Among the biggest losers was airline easyJet, which fell 22.3 per cent to a three-year low after it issued a profit warning. British Airways owner IAG fell 15.9 per cent after Goldman Sachs cut its shares to "neutral".
Spain's Ibex outperformed to end down 1.8 per cent with shares in bank Bankia rising more than 6 per cent and Caixabank ending down 1.6 per cent.
The Brexit vote fuelled fears that populist forces could gain ground in Europe but the Spanish vote strengthened the conservative party of acting Prime Minister Mariano Rajoy, who said he hoped for a government deal next month.
UniCredit said the vote outcome could have been much worse.
"Uncertainty triggered by the Brexit referendum likely pushed undecided voters to lean on traditional forces and it might increase the probability of getting a government this time round," it said in a note.
For more coverage of the EU referendum, visit bt.sg/BrexiT