By Amanda Cooper

LONDON (Reuters) - European shares fell on Thursday in volatile trading marked by BNP Paribas freezing payments from three of its funds, reigniting fears of a credit crunch as two central banks pumped extra cash into the market.

Bank stocks weighed on the FTSEurofirst 300 index of leading European shares. BNP Paribas said it would freeze payments on three funds invested in the subprime sector. Its shares fell by 3.3 percent.

The FTSEurofirst ended down 1.8 percent at 1,525.8 points, having earlier fallen 2.5 percent.

"Once again, I think the market remains nervous until we know the extent of the exposure that the banks and the financial institutions have or the level of those losses," said Henk Potts, a strategist at Barclays Stockbrokers.

"The worries we are seeing are going to lead to more pressure on the credit market, squeezing the availability of credit even further," he said.

Meanwhile another separate European fund valued at 750 million euros was frozen too and Dutch merchant bank NIBC pulled its planned new listing after suffering subprime losses.

London's FTSE 100 index and Frankfurt's DAX fell 1.9 percent and Paris' CAC 40 dropped 2.5 percent.

Shares in French bank Natixis were the biggest percentage decliners in the European banking sector, falling 5.6 percent, while Barclays shares fell 4.4 percent and Societe Generale fell 4.2 percent.