LONDON, March 19 (Reuters) - European shares fell at the open on Tuesday with trade expected to remain volatile as the Cypriot bank levy continued to take centre stage with investors wrestling over the longer-term impact of the bailout plan.
Cyprus's Stock Exchange suspended trade on Tuesday and Wednesday while banks on the island remained shut as its parliament looked set to reject a divisive tax on bank deposits in a vote scheduled for Tuesday.
By 0805 GMT, the FTSEurofirst 300 fell 0.5 percent to 1,194.37, having closed 0.3 percent lower in the previous session after Cyprus's bailout plan sparked fears of bank runs in the euro zone's most indebted countries.
The sell-off caused a sharp spike in European volatility -- a crude gauge of investor fear -- although settled down as investors took the opportunity to grab more shares in big European multinationals on the dips in a market underpinned by central bank support.
"The markets are currently still focusing on the fact that central banks will always be there to save the day, the relatively good economic data out of the U.S. and that there has been no major sell-off after the Italian election, so investors are still positioned for a risk-on environment," Andreas Hoefert, chief economist at UBS, said.
However, Hoefert said that in the long run the developments in Cyprus would be unsettling for the market because it undermines the euro and the trust surrounding policy in Europe, which at some point will see the market reposition itself.