European stocks on Monday recorded a sharp decline and closed at their lowest in three weeks amid concerns of inflation effects on global markets and expectations of further rate cuts in the United States.

The FTSE 300 index fell 1.6 percent to 1,491.7 reducing this year's gain to 0.6 percent.

Banks including HSBC, Santander, UBS and HBOS fell between 1.6 and 3.5 percent making them the worst performers this year in a sector littered with losses linked to a credit crunch.

Earlier in the session, FTSEurofirst declined 1.8 percent as U.S. stock indexes were down between 0.4 and 0.8 percent.

The European index may record the worst performance this year since 2002 due to its surge of more than 30 percent.

Germany's DAX index and France's CAC 40 fell by 1.6 percent as FTSE 100 index declined 1.9 percent.

Major miners such as BHP Billiton, Xstrata and Rio Tinto fell by 4.3 percent, 3.9 percent and 3.2 percent respectively.

Germany Ftse