European stock markets drop amid Greece fallout

European stock markets fell on Tuesday as investors reacted to the fallout from Greece, with focus on the banking sector.

London's benchmark FTSE 100 index slipped 0.23 percent to stand at 6,673.53 points in midday deals.

Frankfurt's DAX 30 dropped 0.35 percent to 11,403.80 points and the CAC 40 in Paris lost 0.67 percent to stand at 5,086.04 compared with Monday's close.

In early afternoon Greek trading, the ATHEX index was down 1.26 percent.

It had suffered its steepest ever fall of 16.32 percent on Monday when trading resumed after a five-week shutdown imposed by the country's debt crisis.

In foreign exchange on Tuesday, the euro rose to $1.0984 from $1.0954 late in New York on Monday.

European stock markets had mostly risen on Monday, appearing to shrug off the plunge in Athens.

Shares in Greek banks continued to fall heavily, with Piraeus dropping to the maximum allowed level of 30 percent for the second day running.

Alpha Bank slumped 29.65 percent after finishing Monday down 29.81 percent.

The other two key lenders, Eurobank and National Bank, fell 29.7 percent and  22.62 percent respectively.

In London, Royal Bank of Scotland reversed early losses to fall 0.56 percent at 335.70 pence after Britain's government said it began selling its majority stake in the lender.

Edinburgh-based RBS was rescued with £45.5 billion of public money, the world's biggest banking bailout at the height of the financial crisis in 2008.

The government has sold at a loss 5.4 percent of RBS for £2.1 billion ($3.3 billion, 3.0 billion euros) to reduce state debt and kick-start the lender's full return to the private sector.

Elsewhere, "commodity markets are likely to remain a key focus," said Craig Erlam, senior market analyst at Oanda trading group.

"The ongoing challenge faced in China is having a great impact, as is the strength of the dollar.

"The low inflation environment despite the huge amounts of liquidity being pumped into the markets and the prospect of higher rates in the US and UK takes a lot of the appeal away from gold as an inflation hedge," Erlam added.

Gold is seen as a haven investment but has lost its shine in recent times amid concerns over weaker growth in China, the world's second biggest economy.

For its part, German automaker BMW said Tuesday that weaker demand from China could weigh on its full-year earnings, as it reported a slight drop in its second-quarter profits.

Its shares were down 2.43 percent at 89.82 euros in Frankfurt afternoon trading.