LONDON - European shares fell sharply on Monday, with markets rattled by a radical bailout plan for Cyprus which knocked confidence in the European banking system, though some investors saw the dips as a buying opportunity.

In a departure from previous EU practice that depositors' savings are sacrosanct, Cyprus and international lenders agreed at the weekend that savers in the island's outsized banking system would take a hit in return for the offer of 10 billion euros ($13.07 billion) in aid.

The FTSEurofirst 300 was down 1.2 percent at 1,188.31 by 0806 GMT, led down by a 2.4 percent drop in banking stocks.

"The whole Cyprus situation feels to me like a storm in a tea cup and weakness should be bought. This is a message from Europe to Cyprus to stop misbehaving," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages around $500 million assets. -
Britain's FTSE 100 also tumbled lower early on Monday after Cyprus planned to impose a shock tax on their investors to prevent a collapse of the financial system, heightening fears of contagion in the euro zone with exposed banks the heaviest fallers.

By 0803 GMT, the FTSE 100 was down 93.03 points, or 1.4 percent, at 6,396.62.

Bank, large holders of deposits within the euro zone, fell 1.7 percent on concerns over their exposure to any turmoil and knock-on effect within.

"Banks clearly will be hit by this news, which will provide an opportunity for investors looking to build a position," Guy Foster, portfolio strategist at Brewin Dolphin, said.

He said the specifics of Cyprus's situation, in terms of the outsized nature of its deposits and the make-up of some of the larger depositors, is not repeated across the euro zone, so confidence in bank deposits on other peripheral European regions, therefore, ought to hold firm.

"In general, however, we remain cautious on the medium term story for Europe. We expect economic data and political infighting to weigh on European markets all summer," Foster said. (Reuterst)