Propelled by high drama in the banking sector, Frankfurt burst through the 8,000 barrier on the Xetra DAX index to close up 89.19 at a record 8,064.97.

The FTSE Eurobloc 100 index lost 6.65 to 1,498.64 and the FTSE Eurotop 100 gave up 18.21 to 3,830.87. The FTSE Eurotop 300 index fell 10.39 to 1,636.27. News that Deutsche Bank and Dresdner Bank were in advanced co-operation "talks" drove sector share prices steeply ahead amid a welter of rumours involving financial stocks.

Dresdner surged to €58 before closing €9.50 or 20 per cent higher at €57.00. Deutsche Bank gained €7.98 to €94.90. Commerzbank jumped €3.42 or 9.2 per cent to €40.49 and HypoVereinsbank €4.58 to €60.97. All four were actively traded. Dresdner saw nearly 11 million shares change hands.

Paris faltered late in the session as the Dow fell below 10,000 and the CAC-40 index ended 104.10 lower at 6,441.85.

Media and technology stocks, the new stars of the bourse, were hit by profit-taking. ST Microelectronics lost €8.60 to €214.10, Cap Gemini €14.80 to €295.20 and Lagardere €4 to €106.

Amsterdam ended lower at 677.21 on the AEX index with steep declines for Unilever, Philips and KPN setting direction.

Caught up in the backwash of the profits-warning from US giant Procter & Gamble, Unilever tumbled €4.21 or 9 per cent to €42.83 after touching a low of €42.52 in 9.3 million shares traded. Philips shed €11.35 or 5.4 per cent at €200.05 and telecoms leader KPN fell €6.00 to €139.

Milan pulled back from Monday's record close as the Dow tumbled in morning trade and profit-taking in recently soaring Internet-related stocks induced a note of caution. The Mibtel index lost 789 or 2.3 per cent to 34,030.

Madrid lost 149.6 to 12,667.2 on the Ibex-35 index, a loss of 1.2 per cent. Building group Fomento de Construcciones y Contratas rose €1.02 to €22.70 on Monday's news it was setting up a division for its telecommunications interests.