European shares fell on Monday and were on track for their biggest quarterly fall in over five years, beset by persistent worries about the financial sector, while a jump in euro zone inflation helped shore up the euro.

The negative sentiment for stocks looked set to spread to Wall Street, where losses for the S&P 500 futures and Dow Jones futures point to a soft start for the US market.

Wary investors were also waiting for the US Treasury to announce plans for revamping regulation faulted for permitting the US mortgage crisis to balloon into a full-blown economic threat.

Investors dumped bank shares on renewed fears over asset writedowns and after Oppenheimer & Co analyst Meredith Whitney warned last Friday of more dividend cuts and forecast a further 25 percent drop in US banking shares.

Swiss bank UBS dropped about 2.5 percent.

"This subprime crisis isn't over yet and we might see more writedowns from banks when they report their first quarter results, and that obviously is entangling stock markets," said Franz Wenzel, strategist at AXA Investment Managers in Paris.

The FTSEurofirst 300 index of top European shares fell 0.7 percent and was down about 17 percent so far this quarter -- its biggest quarterly drop since the third quarter of 2002.

Germany's DAX shed 1.1 percent, while Britain's FTSE eased 0.1 percent.

"Europe Equity Funds have now posted outflows in 29 of the past 30 weeks," said fund tracker EPFR Global.

"Investors are also betting that European banks lag their US counterparts in identifying, admitting to and dealing with the bad debt spawned by the U.S. sub-prime mortgage market," EPFR said in its latest report.

In Asia, shares also posted their worst quarterly performance in over five years. Japan's Nikkei slid 2.3 percent, finishing the fiscal year with its worst quarterly performance since 2001. MSCI's measure of other Asian stock markets fell 1.2 percent.
    MSCI world equity index lost 0.5 percent.

Underscoring worries about tight credit conditions, particularly into the end of the month and quarter, the European Central Bank announced it would inject extra overnight funds to money markets.

In contrast, commodities such as copper were headed for their strongest quarterly performance in almost 2 years with demand seen largely remaining intact despite worries about global growth.

After paring early gains, copper futures in London were little changed on the day at just above $8,400 per tonne.

"Commodities look better and better and equities less and less good. As long as the credit market turmoil persists, commodities could expect to benefit from fund buying," said BNP Paribas analyst David Thurtell.

The euro climbed against the yen and briefly rose versus the dollar, drawing support from stronger-than-expected euro zone inflation data that reinforced views the ECB will be in no hurry to cut interest rates.

Annual euro zone inflation accelerated to 3.5 percent in March from 3.3 percent in February and surpassing an expected pace of 3.3 percent.

"It's higher than expected and it will do nothing to calm down the ECB's concerns, and until we get some evidence that the much-feared second round effects aren't materialising, then the ECB is going to stay hawkish," said Adam Cole, global head of FX currency strategy at RBC Capital Markets.

"I think (the euro) will continue to grind higher, back up towards the historic high, and I think we will test $1.60 before too long."    
The euro rose 0.4 percent versus the Japanese currency to 157.27 yen and was flat against the dollar at $1.5800 after paring earlier gains.

Meanwhile, the dollar advanced 0.4 percent to 99.55 yen, helped by year-end demand for the greenback from Japanese investors and corporates. - Reuters