European shares on the slide

LONDON, England (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 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.

A scramble for cash by banks prompted the European Central Bank to pump a record €94.8 billion into the European money market after overnight lending rates shot up.

The Federal Reserve also added two lots of $12 billion in temporary reserves to the U.S. banking system but analysts did not believe this was an emergency measure.

Oil and gas stocks fell sharply as the price of Brent crude futures shed more than $1 a barrel, briefly falling below $70 a barrel.

Shares in BP were the biggest negative weight on the broader European market, falling 2.2 percent, while French rival Total fell 2.1 percent and Royal Dutch Shell shed 2.7 percent.

Among the few gainers was Deutsche Telekom, whose shares rose nearly 1 percent after the company topped forecasts with a rise in quarterly core profit.

British bank Alliance & Leicester was one of the lone gainers among European banking stocks, rising 1.2 percent as speculation that the company may be a bid target resurfaced. E-mail to a friend

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