European shares slip sharply, led by banks on BoA

* FTSEurofirst 300 drops 3.5 percent

* Banks take off most points

* Miners top sectoral loser

FRANKFURT, April 20 - European shares closed sharply lower on Monday, with banks taking most points off the index as investors gave the thumbs down to Bank of America results marked by an increase in troubled loans.

The FTSEurofirst 300 index of top European shares closed 3.5 percent lower at 786.12 points, the biggest daily percentage drop since March 30. The index has fallen 5.5 percent so far this year, but is up nearly 22 percent since reaching a record low on March 9.

"This (the slump) is just a logical consequence of what happened over the last six weeks, in which the market has constantly gained," said Philippe Gijsels, senior equity strategist at Fortis.

"This could be the end of the bear market rally," he added.

Banks took the most points off the index, with BNP Paribas, Deutsche Bank and Barclays all down between 6.6 and 8.6 percent.

The DJ STOXX Banks Index was down 5.5 percent.

Bank of America Corp said on Monday its acquisition of Merrill Lynch & Co helped quarterly profit but results included a big increase in troubled loans, sending the company's shares tumbling.

Insurers also fell with Allianz, Aviva, AXA and Prudential down between 4.3 and 8.4 percent.

Across Europe the FTSE 100 index was down 2.5 percent, Germany's DAX was down 4.1 percent and France's CAC 40 fell 4 percent.

BOTTOMING OUT

"It's been quite a good bounce from the lows," said Philip Lawlor, strategist at Nomura in London.

"A bit of a pullback on a given day isn't a big surprise," he said. "You can't expect the market to go on gaining at that (26 percent) rate. But people still sense there is a bottoming out process in the economic indicators."

Mining stocks slumped, as copper fell 4.3 percent, with Anglo American, Antofagasta and BHP Billiton down between 4.3 and 6.4 percent.

The DJ STOXX European Basic Resources Index was down 7.1 percent.

Rio Tinto dropped 5.2 percent as it defended itself against shareholder criticism of its proposed $19.5 billion tie-up with China's state-owned Chinalco, its rejection of a takeover bid by BHP Billiton and its costly 2007 purchase of Alcan.

Energy stocks were lower as crude plummeted more than 8 percent, while the DJ STOXX Oil & Gas Index was 2.9 percent lower.

BG Group and Cairn Energy were down 4 and 2.4 percent, respectively.

GlaxoSmithKline, the world's second-largest drugmaker, reversed earlier gains and was down 0.4 percent after agreeing to buy privately- owned U.S. skincare specialist Stiefel Laboratories Inc for up to $3.6 billion.