VW, banks drag European shares down at midday

* FTSEurofirst down 2 percent at 842.67 points

* Battered banks lead decline

* Volkswagen down 10 percent after sales fall

By Brian Gorman

LONDON, Nov 17 (Reuters) - European stocks fell 2 percent at midday on Monday, with banks sharply lower and Volkswagen (VOWG.DE) tumbling after it said group vehicle sales fell 5.1 percent in October.

At 1207 GMT the pan-European FTSEurofirst 300 index .FTEU3 was down 2 percent at 842.67 points after moving in and out of positive territory in early trade.

The index has lost more than 44 percent this year, hurt by a credit crisis and several developed economies going into recession.

The Group of 20 world leaders agreed on Saturday to a raft of fiscal and monetary steps to rescue the global economy, but it was left to individual governments to tailor their response to their own circumstances.

"There is disappointment that the G20 didn't come up with concrete plans," said Philippe Gijsels, senior equity strategist at Fortis Bank, in Brussels. "Though I wouldn't read too much into that.

"I still think we're in the process of finding a bottom in the market, and there will be a bear market rally by the end of the year, as bad news is now priced in."

He added: "There's not too much in terms of economic or corporate data this week. But it is encouraging that governments and central banks understand the situation, and are acting, and cutting rates. "

Volkswagen fell 10 percent after it said group vehicle sales fell 5.1 percent in October.

This made the automobiles sector a major loser, though shares in rival German car maker BMW (BMWG.DE) and Daimler (DAIGn.DE) both added 0.9 percent, while tyre maker Continental (CONG.DE) rose 4.6 percent as traders cited hopes of German or U.S. state aid for the sector. Among banks, which took the most points off the index, Standard Chartered (STAN.L) fell 3.7 percent following weekend press reports that it is investigating whether to raise billions of pounds to bolster its capital base, and has asked JP Morgan and Cazenove to consider options for a capital injection. Dresdner cut its price target for the bank to 1,300 pence, from 2,100 while keeping its "buy" rating.

UBS (UBSN.VX) was down 6.3 percent, after revealing its new plans for executive pay. while HSBC (HSBA.L) shed 3 percent and BNP Paribas (BNPP.PA) lost 6.6 percent.

Deutsche Bank (DBKGn.DE) fell 3.2 percent despite the bank's chief executive being quoted as saying in an interview to a German paper that Germany's largest bank will not need money from the state to survive the financial crisis.