Europe's banks tumble on bailouts, capital needs

LONDON, Oct 6 (Reuters) - European bank shares tumbled on Monday as rescue deals for Germany's Hypo Real Estate and Belgian-Dutch company Fortis in a frenzied weekend of activity kept Europe in centre of the financial market storm.

By 0740 GMT the DJ Stoxx European bank index .SX7P was down 5.7 percent at 274 points, giving up all of Friday's sharp surge.

UniCredit (CRDI.MI) shares fell 12 percent after Italy's second-biggest bank said it would ask shareholders for 3 billion euros ($4.1 billion) and boost capital by a further 3.6 billion euros by paying its dividend in shares. It also cut its earnings forecast. [nL5114152]

BNP Paribas (BNPP.PA) shares lost 2.4 percent, but outperformed rivals after it took control of the Belgian and Luxembourg businesses of Fortis (FOR.BR), in a complex rescue that will make Belgium the French bank's biggest shareholder. Fortis shares were suspended.

News that Germany had offered a blanket bank deposit guarantee and had clinched a deal to rescue lender Hypo Real Estate HRXG.DE failed to restore confidence. Rather, it showed the depth of the problem.

"It highlights the precarious situation that the banking sector is in," said Mamoun Tazi, analyst at MF Global.

Europe's biggest fallers included Dexia (DEXI.BR), UBS (UBSN.VX), Commerzbank (CBKG.DE), Raiffeisen (RIBH.VI) and Erste Group (ERST.VI), all down more than 10 percent.

Britain's Royal Bank of Scotland (RBS.L) fell 12 percent, HBOS lost 14 percent and Barclays (BARC.L) and Lloyds (LLOY.L) shed 7 percent. The UK government is due to make a statement on the bank crisis later on Monday amid reports it could recapitalise the sector and take a stake in banks.

"What's worrying for the UK banks is the threat the government may step in and buy preference shares and dilute shareholders," Tazi said. "The market doesn't like uncertainty and the threat of dilution." (Reporting by Steve Slater; editing by Sue Thomas)