CORRECTED - European stocks hit session highs on weaker oil

(Corrects in paragraph 4 to show that banks rose, not fell)

LONDON, Sept 2 (Reuters) - European shares extended gains to hit session highs in afternoon trade on Tuesday, as a sharp decline in oil prices lowered inflation concerns and lifted banking and insurance stocks.

At 1315 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 1 percent at 1,201.79, after hitting a high of 1,202.37.

Oil fell more than 7 percent to below $107 a barrel after reports showed Hurricane Gustav had spared major U.S. Gulf oil facilities.

The banking sector was the top weighted sectoral gainer on the pan-European index, with Royal Bank of Scotland (RBS.L), Barclays (BARC.L), HBOS HBOS.L and Lloyds TSB (LLOY.L) rising between 1.3 and 4.1 percent.