Europe shares sink on Lehman bankruptcy, AIG report

                                
 * FTSEurofirst 300 tumbles 3.8 percent 
                                
 * Lehman bankruptcy filing hits stock markets
                                
 * Commodities slip; weaker crude, metals prices also weigh
                                
 
                                
 By Atul Prakash 
                                
 LONDON, Sept 15 (Reuters) - European shares slumped on
Monday as nervousness gripped the market after Lehman Brothers
<LEH.N> filed for bankruptcy protection and a newspaper reported
that AIG <AIG.N> sought $40 billion from the Federal Reserve.
                                
 By 0843 GMT, the FTSEurofirst 300 <.FTEU3> index of top
European shares was down 3.8 percent at 1,118.10 points, its
lowest in nearly two months. It is down 26 percent this year.
                                
 Out of 314 shares traded on the index, 311 were down.
                                
 Lehman filed for bankruptcy protection, after trying to
finance too many risky assets with too little capital, making it
the largest and highest-profile casualty of the global credit
crisis. [ID:nN14440361] Its shares <LHMH.F> plummeted 80 percent
in Frankfurt.
                                
 Financial market woes continued with American International
Group <AIG.N>, working to stave off rating downgrades and shore
up the capital of its holding company, made an unprecedented
approach to the U.S. Federal Reserve seeking $40 billion in
short-term financing, the New York Times said. AIG officials did
not immediately respond to requests for comment.[ID:nBNG121750]
                                
 Banks topped the weighted losers list, with BNP Paribas
<BNPP.PA>, Credit Agricole <CAGR.PA>, Dexia <DEXI.BR>, Fortis
<FOR.BR> and Societe Generale <SOGN.PA> down between 6 and 9
percent.
                                
 The DJ Stoxx European banking index <.SX7P> and European
insurance index <.SXIP> were down 5.4 percent and 5.9 percent
respectively.
                                
 "This is a perfect storm in a perfect storm. There are two
ways of looking at it: one, as financial Armageddon, the other
as a dose of realisation of the level of complexity of the
problem people are dealing with," said Justin Urquhart Stewart,
investment director at 7 Investment Management.
                                
 "It's a return to pure capitalism, the survival of the
fittest -- the government can't, and won't, bail everybody out."
Britain's FTSE <.FTSE> fell 3.7 percent, Germany's DAX
<.GDAXI> lost 3.6 percent and France's CAC <.FCHI> fell 4.5
percent.
                                
 FINAL CLEAN UP?
                                
 Bank of America Corp <BAC.N> agreed to buy Merrill Lynch
<MER.N> in an all-stock transaction that Bank of America said is
worth $50 billion. [ID:nLF644127]
                                
 A newspaper reported on Sunday that Swiss bank UBS <UBSN.VX>
would have to write down another $5 billion on its risky
investments in the second half of the year. Its shares were down
8.4 percent.
                                
 "It can be the final clean up, but you have a risk within
the financial system to see a lot of downgrading and losses.
Beyond this point, my concern is the real economy," said Valerie
Plagnol, chief strategist at CM-CIC Securities, in Paris.
                                
 "We are faced with quite a dramatic credit crunch ... the
fact that the central bank is widening its collateral to include
stocks may prove to bring some support to the market, but I
don't know. The Fed is really doing its best to avoid any major
crash."
                                
 The Federal Reserve took new steps on Sunday to ease trading
disruptions. The Fed said it would begin accepting equities as
collateral for emergency loans for the first time ever, and said
it would increase the amount of Treasury securities it auctions
regularly under one of its lending programs.
Commodity stocks also fell, hit by a broader sell off in the
market and falling prices of metals and crude. Key base metals
fell between 0.3 and 2.7 percent, while crude tumbled below $100
a barrel to a six-month low.
                                
 BP <BP.L>, Royal Dutch Shell <RDSa.L>, gas producer BG Group
<BG.L> and Tullow Oil <TLW.L> shed between 2.3 and 5 percent.
                                
 BHP Billiton <BLT.L>, Anglo American <AAL.L>, Vedanta
Resources <VED.L>, Lonmin <LMI.L>, Kazakhmys <KAZ.L>, Xstrata
<XTA.L>, Antofagasta <ANTO.L> and Rio Tinto <RIO.L> slipped 
between 4.4 and 6.3 percent.
 BASF <BASF.DE> fell 4.5 percent after the world's biggest
chemicals group said it planned to take over Swiss specialty
chemicals company Ciba <CIBN.VX> to strengthen its position in
that speciality business. [ID:nLF639932]. But Ciba jumped 27
percent, a rare European gainer.
                                
 A number of Asian markets including Japan and Hong Kong were
closed on Monday for holiday.
 (Editing by Sue Thomas)