Europe shares extend losses; Porsche drops 4 pct

* FTSEurofirst 300 down 0.2 pct, falls for 3rd day in a row

* Porsche falls 4 pct, receives loan

* Arcandor drops 12.7 pct; CEO says co needs state aid

* For up-to-the-minute market news, click on [STXNEWS/EU]

By Christoph Steitz

FRANKFURT, May 25 (Reuters) - European shares fell on Monday as Porsche led carmakers lower after Volkswagen said it gave a multi-million euro loan to its smaller German peer, while trade was thin with UK markets closed for a holiday.

Porsche (PSHG_p.DE) fell 4 percent after the company confirmed media reports that it received a 700 million euro ($979.7 million) loan from Volkswagen (VOWG.DE) to help with its finances.

At 1107 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was down 0.2 percent at 854.67 points, after edging higher in the first minutes of trading.

The index, up 2.8 percent on the year, has risen 32.4 percent since reaching a record low in early March, but the rally started to abate at the end of last week on growing concerns over mounting government debt.

U.S. markets were also closed on Monday for the Memorial Day holiday.

"The markets in the U.K. and the United States are closed and there is a lack of momentum for a bigger move," said Heinz-Gerd Sonnenschein, equity strategist at Postbank in Germany.

"At least in Germany, we have newsflow from Porsche and Arcandor which is impacting stocks. Even the IFO index did not bring what some investors may have hoped for," he added.

Germany's Arcandor (AROG.DE) shed 12.7 percent after its CEO Karl-Gerhard Eick and Chairman Friedrich-Carl Janssen reiterated the need for state aid to ensure the survival of the company in interviews with Frankfurter Allgemeine Sonntagszeitung and Der Spiegel.

Across Europe, Germany's DAX .GDAXI was down 0.6 percent and France's CAC .FCHI lost 0.3 percent.

EXCESSIVE OPTIMISM

Weaker-than-expected readings of the German business sector suggested that the nation's firms continue to struggle.

Germany's Ifo said that its business climate index came in at 84.2, lower than forecasts for 85.0. The reading for current conditions was 82.5, also lower than expectations for 84.0. Despite those readings, the expectations index came in at 85.9, higher than forecasts for 85.5 [ID:nBAE001655].

The euro EUR= fell as low as $1.3959, according to Reuters data, hitting the day's low. It traded at $1.3985 before the data was released.

"The recent optimism on the markets has been excessive," Joost van Leenders, strategist at Fortis Investments wrote in a note. "The deleveraging process is far from over and governments are facing rising deficits."

French building material group Saint-Gobain (SGOB.PA) lost 1 percent. Two bankers told Reuters that the company was seeking a 2 billion euro refinancing loan. No one at Saint-Gobain was available for comment. (Additional reporting by Blaise Robinson in Paris; Editing by Rupert Winchester)