Europe shares hit 3-mth closing low; banks fall

* FTSEurofirst 300 index closes 2.1 percent lower

* Banks extend recent decline

* U.S. labour data helps pare shares' losses

By Brian Gorman

LONDON, Feb 5 (Reuters) - European shares fell for a third day on Friday, and notched up their biggest weekly decline in 11 months, with banks extending recent falls on intensified worries about euro zone sovereign debt.

The pan-European FTSEurofirst 300 .FTEU3 index of top shares fell 2.1 percent to 972.10 points, the lowest close since early November of last year.

Over the week, the index fell 3.9 percent, its biggest weekly fall since last March. It is down 9.5 percent from the 15-month high it hit on Jan 11.

European policymakers scrambled on Friday to reassure markets about the stability of their 16-nation currency bloc as investors shed euro assets for a second day on fears about debt-laden member states like Greece and Portugal. [ID:nSGE61407V]

Banks took the most points off the index. BNP Paribas (BNPP.PA), HSBC (HSBA.L), Lloyds Banking Group (LLOY.L) and Societe Generale (SOGN.PA) fell between 1.2 and 5.7 percent.

Greek banks that fell included National Bank (NBGr.AT), EFG Eurobank (EFGr.AT), Piraeus Bank (BOPr.AT) and Alpha Bank (ACBr.AT), down between 4.5 and 7.4 percent.

"It is all about Greece, Spain and Portugal. The market is worried about whether the peripheral states in Europe are going to have a contagion effect on the whole of the euro zone," said Jim Wood-Smith, head of research at Williams de Broe.

U.S. payrolls unexpectedly fell in January, but the unemployment rate surprisingly dropped to a five-month low, according to a government report that suggested the labour market was still improving slowly. [ID:nN04115255]

This helped equities finish above the day's low but failed to convince some strategists.

"The data shows underlying weakness," said Jeremy Batstone-Carr, at Charles Stanley.

He pointed to other reasons for investors to worry. "I don't buy into the earnings recovery story. As the year goes on, it's going to be more difficult for companies to beat last year's earnings," said Batstone-Carr said.

Energy stocks were also among the worst performers, as oil CLc1 fell below $70, hurt by a stronger dollar .DXY.

BP (BP.L), Royal Dutch Shell (RDSa.AS), Statoil (STL.OL) and Total (TOTF.PA) fell between 0.9 and 3.5 percent.

UK gas producer BG Group (BG.L) fell 3.2 percent after its fourth-quarter earnings, excluding non operations, missed expectations. [ID:nLDE61328P]

Insurers that fell included Aviva (AV.L), AXA (AXAF.PA) and Prudential (PRU.L), down between 3.3 and 6.1 percent. Across Europe, the FTSE 100 .FTSE and Germany's DAX .GDAXI ended the day 1.5 and 1.8 percent lower, respectively. France's CAC 40 .FCHI fell 3.4 percent.

Greek stocks .ATG slumped 3.7 percent.

Wall Street was lower around the time European bourses were closing. The Dow Jones .DJI, S&P 500 .SPX and Nasdaq Composite .IXIC were down between 0.1 and 0.2 percent.

BAE rises

Among individual shares, BAE Systems (BAES.L) Europe's biggest defence contractor, rose 1.6 percent after saying it will pay around $450 million in fines to end a long-running corruption investigation on both sides of the Atlantic. [ID:nLDE6141WV]

Also on the upside, Compass Group (CPG.L) gained 5.2 percent after it said it had made a good start to the year.

ICAP (IAP.L), the world's biggest interdealer broker, slumped 19.5 percent after it gave a profit warning, with margins down as new businesses were taking longer than anticipated to turn a profit. [ID:nLDE61404V]

The European shares benchmark is still up more than 50 percent from its lifetime low of March 9.

(Additional reporting by Joanne Frearson; Editing by Erica Billingham)