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.

Around Europe, Britain's FTSE 100 .FTSE fell 1.9 percent, Germany's DAX .GDAXI lost 2.6 percent and France's CAC .FCHI fell 2.2 percent.

NOKIA BOUNCES

Nokia (NOK1V.HE) rose 2.8 percent, after Merrill Lynch upgraded the shares to "buy" from "neutral".

The broker said: "Looking six months out, we see the company re-accelerating its handset release process after significant problems in 2008."

It added that valuation was also a factor. On Friday, Nokia shares fell to a four-year low after the company lowered its estimates for the sales of handsets throughout the industry for 2009.

Alcatele-Lucent (ALUA.PA) was up 4.3 percent.

Swedish fashion giant Hennes & Mauritz (HMb.ST) was up 2.2 percent after posting sales figures that were in line with market forecasts on Monday, with revenue from established stores dropping a modest 2 percent.

But shares in Tesco (TSCO.L), the UK's largest supermarket chain, fell 4.1 percent after JP Morgan cuts its rating to "underweight" from "neutral" and reduced its target price to 290 pence from 340 pence.

Investors were also digesting data that showed Japan, the world's second-largest economy, has slipped into recession. Japan's economy shrank 0.1 percent in the third quarter for its second straight quarter of contraction.

Futures for the Dow Jones DJc1, S&P 500 SPc1 and Nasdaq NDc1 were down between 0.5 and 0.7 percent.

Oils were mostly lower, with crude prices CLc1 falling more than 2 percent to less than $56 a barrel.

Total (TOTF.PA), ENI (ENI.MI) amd Statoil (STL.OL), were down 1.4 to 3.2 percent.

Shares in HeidelbergCement (HEIG.DE) tumbled 15.9 percent after the Financial Times Deutschland newspaper said the company's majority stake holder, the Merckle family, could sell its stake to offset losses made on Volkswagen (VOWG.DE) stock.

Parmalat SpA (PLT.MI) shares fell 5.5 percent after the Italian dairy company said on Friday it is cutting its full-year forecast for earnings before interest, tax, depreciation and amortisation. (Additional reporting by Rebekah Curtis; Editing by Hans Peters)