European shares fall after shock US jobs data

LONDON, March 7 (Reuters) - European shares extended losses on Friday after data showed the U.S. labour market saw a second consective surprise fall in February, which heightened concern over the strength of the world's largest economy.

The U.S. government said 65,000 workers were lost from non-farm payrolls, compared with forecasts for a rise of 25,000. January payrolls were revised to show a fall of 22,000 from a fall of 17,000.

By 1338 GMT the FTSEurofirst 300 index .FTEU3 of top European shares was down 1.6 percent at 1,262.57 points compared with a 1.3 percent loss before the data.

"People went short 20 minutes ahead of the release, thinking that if it was really bad, markets would tank very quickly, and if it was good, they'd have plenty of time to cover their shorts," one London-based trader said.

"In the afternoon, I would expect them to start to sell off...if there's any rally, people will start selling into strength."

Banks were the largest collective drag on the broader market. ING (ING.AS), Barclays (BARC.L), HSBC (HSBA.L) and UniCredit (CRDI.MI) fell 1.1 to 3 percent.

The index fell sharply ahead of the payrolls report after the Federal Reserve said it would increase amounts in its two March Term Auction Facility auctions to $50 billion to ease liquidity pressures in the financial markets. (Reporting by Amanda Cooper and Sitaraman Shankar)