European markets closed down sharply after Wall Street opened lower and the dollar fell against key European currencies, reversing earlier gains.

Frankfurt

The Xetra DAX index of leading shares closed down 133 points, or 2.6% lower, at 5,026.

Shares fell back in groups that had announced mergers, on profit taking.

Deutsche Bank, which announced it had finalised its merger plans with Bankers Trust for $10.3bn, was down 2.3%, while rival Dresdner fell by 4%.

Hoechst, which will confirm a merger of its life sciences business with Rhone Poulenc on Tuesday, wad down 2.9%.

And BMW, the car maker, fell by 6% because of the stronger D-mark.

But shares in Krupp were up 2% after better than expected pre-tax profits. Krupp will merger with Thyssen later in the year.

Paris

Shares in Paris dropped sharply after a weak start.

The Cac 40 index of leading shares was down 107 points at 3843, a daily spread of over 140 points.

France Telecom was among the most active stocks, falling 15 francs to 395 after the government announced details of the flotation of the second tranche of shares in the company, with a target price of FFr390 for individual investors and FFr400 for institutions.

Profit taking hit the shares of Rhone-Poulenc ahead of its merger annoucement with German chemicals giant Hoechst.

Oil company Total bucked the trend, as rumours spread that it was poised to acquire Belgium's Petrofina.

And high-tech stocks like Cap Gemini and Thomson-CSF were hit by the weakening of the dollar.

Bouygues shares fell 83 as Bollore Technologies, a possible bidder for the company, sold its stake.