Banks weigh on European shares; eyes on U.S. bailout

* FTSEurofirst 300 index falls 1.6 percent

* Banks top losers as U.S. bailout plan in disarray

* Mining, energy stocks down as commodity prices fall

By Peter Starck

FRANKURT, Sept 26 (Reuters) - European stocks fell early on Friday led by financials, notably Dutch-Belgian Fortis (FOR.AS: Quote, Profile, Research, Stock Buzz), as uncertainty persisted over the $700 billion U.S. financial sector bailout plan and U.S. bank Washington Mutual collapsed.

At 0820 GMT the FTSEurofirst 300 index of top European shares was down 1.6 percent at 1,107.28 points, with banks the leading weighted losers.

"It's all revolving around what the U.S. is capable of doing to get its financial markets functioning normally once again that is driving the sentiment of traders right now," CMC Markets said in a note.

Fortis fell 13.4 percent, having dropped to a 14-year low on Thursday, amid concerns over the group's liquidity, traders said. Fortis credit default swaps widened by 75 basis points to 425 basis points, they said.

KBC Securities in a note attributed Thursday's slide to "unfounded speculation", adding that Fortis did not need a share issue and that "liquidity has never been an issue".

Fortis said it would hold a media briefing at 0930 GMT but did not plan to make any fresh announcement.

Shares in HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) fell 1.1 percent after saying it was cutting 1,100 jobs in its global banking and markets operation, citing "market conditions and the economic environment, and our cautious outlook for 2009."

Banks were the top weighted losers on the FTSEurofirst 300, with Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) down 5.1 percent, rival Swiss bank UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) 3.7 percent lower and Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) down 3.4 percent.

Insurers were also weak, with French AXA (AXAF.PA: Quote, Profile, Research, Stock Buzz) falling 1.9 percent, Swiss Re (RUKN.VX: Quote, Profile, Research, Stock Buzz) down 2.4 percent, Dutch ING (ING.AS: Quote, Profile, Research, Stock Buzz) losing 2.4 percent and Germany's Allianz (ALVG.DE: Quote, Profile, Research, Stock Buzz) 1.4 percent lower.

ATE Securities in Greece said in a note that the collapse of Washington Mutual, the largest U.S. savings and loan bank, served as a reminder of "the continuation of an unprecedented credit crunch."

Washington Mutual was closed by the U.S. government on Thursday, making it the largest failure of a U.S. bank, and its banking assets were sold to JPMorgan (JPM.N: Quote, Profile, Research, Stock Buzz) for $1.9 billion.

WEEKEND DEAL?

U.S. congressional leaders were due to try again on Friday to save the $700 billion Wall Street rescue plan after talks broke down in acrimony on Thursday.

"Discussions are likely to stretch into the weekend, aiming for an announcement before Asian markets open on Monday. This would give a strong boost to equity markets early next week," UniCredit UniCredit said in a note.

"Tensions in money and interbank markets would abate from the current extreme levels, but would not dissipate, as it will take time for the plan to get underway and clean up the balance sheets of financial institutions," UniCredit added.

Commerzbank said the U.S. administration would probably succeed in stabilising the system gradually.

"But the shock has been a severe one, and at the very least the next few months will see a credit squeeze as banks expand their lending at a below-average pace. It is also possible that banks will reduce their lending," Commerzbank said in a note.

Citing tough capital market conditions, the perilous shape of the U.S. economy and the distinct slowdown in economic growth in Europe, LandesBank Berlin (LBB) said stock markets would remain volatile.

"The risk of new lows is not minor," LBB said, adding that stocks could swing sharply up or down in the near term depending on the details of the U.S. financial sector bailout package.

The FTSEurofirst 300 hit a three-year low of 1,059.16 in intra-day trading on Sept. 18.

Away from financials, shares in mobile phone maker Nokia (NOK1V.HE: Quote, Profile, Research, Stock Buzz) fell 4.4 percent to 13.3 euros. JPMorgan lowered its 2009 earnings-per-share estimate for Nokia by 11.6 percent and cut its price taerget for the stock to 10 euros from 11 euros, citing a "worsening market".

Energy shares fell as the crude oil price CLc1 dropped more than 2.5 percent towards $105 a barrel. BP (BP.L: Quote, Profile, Research, Stock Buzz) was down 1.6 percent, Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) dipped 1.3 percent and Total (TOTF.PA: Quote, Profile, Research, Stock Buzz) traded 1.5 percent lower.

The basic resources sector index , which includes miners, fell 2.4 percent as copper prices MCU3 lost ground. Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz) dropped 4.5 percent, Antofagasta (ANTO.L: Quote, Profile, Research, Stock Buzz) shed 3.4 percent and BHP Billiton (BLT.L: Quote, Profile, Research, Stock Buzz) traded 2.6 percent lower. (Editing by Greg Mahlich)