European shares down 7.6 pct ahead of G7 meeting

By Peter Starck

FRANKFURT (Reuters) - European shares tumbled to their lowest close in more than five years on Friday amid panic-selling which hit financials particularly hard on fears that frozen credit markets may spark a global recession.

The FTSEurofirst 300 index of top European shares lost 7.6 percent to finish at 851.23 points -- its lowest close since July 2, 2003.

The pan-European benchmark fell as much as 9.9 percent earlier in the session and had its worst week on record with a drop of 22 percent.

"The new lows we've seen in stock markets this week are the result of panic selling," said Joost van Leenders, asset allocation specialist at Fortis Investments.

The DJ Stoxx European bank index fell 10.4 percent, with Royal Bank of Scotland down more than 25 percent, Credit Suisse and Deutsche Bank dropping over 16 percent each, Barclays falling more than 14 percent and Societe Generale shedding 13 percent.

Insurance shares lost 9 percent as Aegon fell almost 17 percent, Legal & General 16 percent, Old Mutual and ING Groep both nearly 13 percent, and Swiss Life and Swiss Re 12.5 percent each.

"There is simply panic and hopelessness. This is a bubble in reverse: many market participants feel and believe that the correction is going too far, but no one has the strength of going against the flow," UniCredit said in a note.

DISTRUST