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> 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> down
1.9 percent, Fortis <FOR.BR> down 2.5 percent and Royal Bank of
Scotland <RBS.L> down 2.1 percent. The DJ Stoxx banking index
<.SX7P> 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> and Freddie
Mac <FRE.N> 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> 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> rose 2.1 percent,
Xstrata <XTA.L> gained 2.8 percent, and Eramet <ERMT.PA> added
2.4 percent.
                                
 Kazakh miner Eurasian Natural Resources <ENRC.L> rose 4.3
percent, boosted by strong first-half results, and after the
company said it will keep looking for takeovers, especially in
China, and this will not be made difficult by an increased stake
of 25 percent held by rival Kazakhmys <KAZ.L>.
                                
 Around Europe, Germany's DAX index <.GDAXI> was down 1.1
percent, UK's FTSE 100 index <.FTSE> down 0.8 percent and
France's CAC 40 <.FCHI> down 1.2 percent.
                                
 Gemalto <GTO.PA>, the world's largest provider of smart
cards, gained 7 percent after posting forecast-beating adjusted
first-half operating income and lifting its forecast for
earnings in the full year.
                                
 Merck KGaA <MRCG.DE> gained 1.2 percent after UBS started
the German drugmaker with a "buy" rating and a price target of
100 euros, traders said.
                                
 (Reporting by Blaise Robinson; Editing by Erica Billingham)