European shares down 7.6 pct ahead of G7 meeting

* FTSEurofirst 300 ends 7.6 percent lower

* Lowest close since July 2, 2003

* Banks down 10 percent, insurance down 9 percent

* All eyes on G7 meet, coordinated action expected

By Peter Starck

FRANKFURT, Oct 10 (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 .FTEU3 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 .SX7P fell 10.4 percent, with Royal Bank of Scotland (RBS.L) down more than 25 percent, Credit Suisse CGSN.VX and Deutsche Bank (DBKGn.DE) dropping over 16 percent each, Barclays (BARC.L) falling more than 14 percent and Societe Generale (SOGN.PA) shedding 13 percent.

Insurance shares .SXIP lost 9 percent as Aegon (AEGN.AS) fell almost 17 percent, Legal & General (LGEN.L) 16 percent, Old Mutual (OML.L) and ING Groep (ING.AS) both nearly 13 percent, and Swiss Life (SLHN.VX) and Swiss Re (RUKN.VX) 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

Erste Bank pointed out that interbank market risk premiums had risen despite the central banks' liquidity injections.

"The distrust of the banks is likely to continue in the light of the negative reports of bank failures," Erste said in a note, estimating that financial institutions would face "billions" in additional write-offs.  Continued...