Europe stocks drop to 3-wk low on credit woes, oil

* FTSEurofirst 300 falls 1.2 pct to a 3-week low

* Banking shares tumble on renewed credit fears

* IKB jumps on news of stake sale to Lone Star

By Blaise Robinson

PARIS, Aug 21 (Reuters) - European shares fell to a three-week low early on Thursday, erasing gains made in the previous session, as a rising oil price revived inflation concerns while banks fell on renewed credit worries.

IKB (IKBG.DE: Quote, Profile, Research, Stock Buzz) jumped 10 percent on news that U.S. private equity firm Lone Star [LS.UL] was to take a 90.8 percent stake in the lender, Germany's most prominent casualty of the subprime crisis.

At 0807 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was down 1.1 percent at 1,152.47 points. The index gained 0.5 percent on Wednesday.

Banks were among the biggest losers, with HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) down 1.9 percent, Fortis (FOR.BR: Quote, Profile, Research, Stock Buzz) down 2.5 percent and Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) down 2.1 percent. The DJ Stoxx banking index was down 1.6 percent.

"The price of oil is going up again, so oil-related stocks might do well but that's a different story for the broad market," said Rik Zwaneveld, trader at AFS Brokers, in Amsterdam.

"Inflation fears are back, on top of worries surrounding the fate of Freddie Mac and Fannie Mae, fears of additional writedowns, etc. etc. People are getting nervous again."

Investors dumped shares of Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) on Wall Street overnight on fears of an imminent government bailout of the two big mortgage companies.

Adding to the negative sentiment in the banking sector, The Financial Times said that Lehman Brothers LEH.N had held talks to sell up to 50 percent of its shares with China's CITIC Securities (600030.SS: Quote, Profile, Research, Stock Buzz) as well as with state-owned Korea Development Bank, but both investors walked away saying the price was too high. CITIC said it had held no formal talks about buying a stake.

Banking shares have been hammered over the past year by worries over the credit crisis that has forced financial institutions to make massive asset writedowns and seek emergency capital increases.

The FTSEurofirst 300 has lost 24 percent so far in 2008, while the DJ Stoxx banking index has dropped 34 percent.

Mining was the only sector on the rise, gaining ground along with metal prices. Anglo American (AAL.L: Quote, Profile, Research, Stock Buzz) rose 2.1 percent, Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz) gained 2.8 percent, and Eramet (ERMT.PA: Quote, Profile, Research, Stock Buzz) added 2.4 percent.  Continued...