Europe stocks fall sharply on economy, credit worries

LONDON, Sept 7 (Reuters) - European shares fell in early trade on Friday, extending losses from the previous session, as investors sold banking and insurance stocks amid intensified worries over the global economy.

At 0720 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was down 0.4 percent at 1,146.60 points.

Royal Bank of Scotland (RBS.L), Banco Santander (SAN.MC), BNP Paribas (BNPP.PA) were all down between 1-3 percent and ranked among the top negative weights on the benchmark. European shares lost 2.6 percent on Thursday and sparked a global equities decline after European Central Bank projections showed a cut in growth expectations compared with their last prognosis three months ago.

The ECB also unveiled tougher rules on the assets banks can submit as collateral in central bank lending operations, hurting bank stocks.

"Investors are (also) still shell-shocked after yesterday's comments by Bill Gross, chief investment officer at Pimco that the financial system was heading into becoming a financial tsunami," said Justin Urqurhart Stewart, director at 7 Investment Management.

Commodity stocks were broadly higher, limiting the pan-European index's losses. Miner Rio Tinto (RIO.L) rose 2.3 percent, while BP (BP.L) gained 1 percent, making them the top two weighted gainers on the benchmark.

(Reporting by Joanne Frearson)