By Blaise Robinson

PARIS, Dec 17 (Reuters) - European stocks fell to a near three-week low early on Monday, hit by fears that strong U.S. inflation data may prevent the Federal Reserve from cutting interest rates enough to shield the world's biggest economy from a recession.

Banks were among the biggest losers, with UBS <UBSN.VX> down 3.2 percent, HBOS <HBOS.L> down 3.6 percent, and BNP Paribas <BNPP.PA> down 2.1 percent.

Standard Life <SL.L> dropped 4.9 percent, hit by lukewarm analyst research and a weekend report that the Financial Services Authority is investigating leaks of price sensitive information during the battle for rival Resolution <RSL.L>.

At 0942 GMT, the FTSEurofirst 300 <.FTEU3> index of top European shares was down 1.4 percent at 1,495.17 points, after falling to as low as 1,490.00 points. Europe's benchmark index, up a thin 0.8 percent on the year, is on track to report its worst yearly performance since 2002.

"Inflation will remain a concern over the next couple of months, but in light of a somewhat weak growth environment, inflation should ease, starting from the second quarter of next year," said Franz Wenzel, strategist at AXA Investment Managers, in Paris.

"That should calm markets, but for the moment, investors are worried about that. The Christmas rally will be difficult to get this time."

Data showed on Friday a jump in the U.S. consumer price index in November. The higher-than-expected figures came after a sharp rise in producer prices, highlighting worries voiced by the Fed when it cut rates modestly last week and disappointed some market players who had expected a bigger cut.

Investors were also cautious on Monday ahead of quarterly results from three of Wall Street's biggest investment banks and brokerage firms, expected later in the week, which could give clues to the impact of the credit crisis on the financial sector.

Goldman Sachs Group Inc <GS.N> is due to report on Tuesday, Morgan Stanley <MS.N> on Wednesday and Bear Stearns Co Inc <BSC.N> on Thursday.

Banking shares have sharply retreated over the past few months on fears that a debacle in the U.S. subprime mortgage market would force banks to report huge writedowns.

"Banks have been scrabbling around the world searching for cash injections as there are strict rules concerning lending limits," Simon Denham, managing director at Capital Spreads, wrote in a note.

"One of the units in the calculation is the actual capital value of the bank itself. If the shares have dropped 40 percent this creates a mismatch which must be plugged and without fresh capital they will be severely restricted on next year's lending."

The DJ Stoxx European bank index <.SX7P> has lost 17 percent so far this year, with UBS down 28 percent, Barclays <BARC.L> down 29 percent, Fortis <FOR.BR> down 34 percent and Royal Bank of Scotland <RBS.L> down 35 percent.

Around Europe on Monday, Germany's DAX index <.GDAXI> shed 1.5 percent, the UK's FTSE 100 index <.FTSE> lost 1.4 percent and France's CAC 40 <.FCHI> fell 1.7 percent.

Mining stocks were also lower as base metal prices fell on economic worries.

Rio Tinto <RIO.L> shed 2.4 percent and Xstrata <XTA.L> fell 3.4 percent. (Editing by Paul Bolding) (([email protected] ; +33 1 4949 5269, Reuters Messaging: [email protected]))

Keywords: MARKETS EUROPE STOCKS/OPEN

 
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    For rolling updates on what is moving European shares  
    please click on [STXNEWS/EU] 
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 For pan-Europeanmarket data and news, click on codes in  
 brackets: 
 European Equities speed guide...................<EUR/EQUITY> 
 FTSEurofirst 300 index..............................<.FTEU3> 
 DJ STOXX index......................................<.STOXX> 
 Top 10 STOXX sectors...........................<.PGL.STOXXS> 
 Top 10 EUROSTOXX sectors......................<.PGL.STOXXES> 
 Top 10 Eurofirst 300 sectors...................<.PGL.FTEU3S> 
 Top 25 European pct gainers.......................<.PG.PEUR> 
 Top 25 European pct losers........................<.PL.PEUR> 
    Main stock markets: 
 Dow Jones...............<.DJI>  Wall Street report .....[.N] 
 Nikkei 225.............<.N225>  Tokyo report............[.T] 
 FTSE 100...............<.FTSE>  London report...........[.L] 
 Xetra DAX.............<.GDAXI>  Frankfurt market stories[.F] 
 CAC-40.................<.FCHI>  Paris market stories...[.PA] 
 World Indices......................................<0#.INDEX> 
 Reuters survey of world bourse outlook..........<EQUITYPOLL1> 
 Western European IPO diary...........................[WEU/IPO] 
 European Asset Allocation.........................[EUR/ASSET] 
    Reuters News at a Glance: Equities...............[TOP/EQE] 
    Main currency report:...............................[FRX/] 
  Keywords: MARKETS EUROPE STOCKS/ =2