LONDON - News that Britain's bailed-out banks may have to sell more of their businesses in return for being rescued jangled market nerves Monday, with Royal Bank of Scotland, Lloyds Banking Group and the wider financial sector facing a crucial week in the road to recovery.

Royal Bank of Scotland Plc announced Monday that EU regulators were demanding it sell significant parts of its business, more than it had expected - a move supported by the government, which on Sunday called for a thorough shake up of the sector.

The news caused shares in RBS, which is 70 percent owned by the government, to fall more than 7 percent to their lowest level in more than three months. RBS said it would release details of the asset sales by Friday morning, when it reports third-quarter results.

Lloyds, which is itself 43 percent owned by taxpayers, is expected to announce Tuesday fundraising plans aimed at keeping the government from acquiring a larger stake. It may also update the market on its disposal plans. Shares were down 3.5 percent by midday.

"Uncertainty over the path of economic recovery, combined with a lack of visibility over the potential for further credit losses, means an investment in either RBS or Lloyds remains very high risk, and we would expect both stocks to continue to exhibit a high degree of volatility over the next few days," said Jonathan Jackson, head of equities at Killik and Co. in London.

"The announcement over the weekend that CIT Group, the U.S. small-business lender, has filed for bankruptcy should also serve to remind investors that the financial crisis is far from over," Jackson added.

The Financial Times reported that Lloyds would provide more details on Tuesday of its plans to raise up to 25 billion pounds ($41 billion) and stay out of the government's Asset Protection Scheme for insuring losses on toxic assets. That would prevent the government from becoming the majority shareholders in the group.

The divestitures are being driven by the European Commission, the executive arm of the European Union, which has made this part of the price the banks must pay for their public support.

EU Competition Commissioner Neelie Kroes served notice in June that RBS and Lloyds might have to sell a large chunk of their assets to comply with EU antitrust rules. "The massive aid received by banks such as Lloyds and RBS allows these banks to remain leaders on markets which are concentrated," she said.

U.K.