UPDATE 5-Aegon gets 3 bln euros in government capital

* Dutch government to provide 3 billion euros capital

* Final 2008 dividend scrapped, Q3 loss of 350 million euros

* Shares close down 14 pct on EPS dilution concerns (Adds fund manager comment, updates shares)

By Reed Stevenson

AMSTERDAM, Oct 28 (Reuters) - Dutch insurer Aegon NV (AEGN.AS: Quote, Profile, Research) tapped into government funding on Tuesday, taking 3 billion euros ($3.7 billion) to strengthen a capital base eroded by investment losses and exposure to risky investments; but its shares fell to a 16-year low on profit dilution concerns.

Terms of the capital funding [ID:nLS95580], the second by a major Dutch financial company, were similar to those of a 10 billion euro deal struck last week between ING Groep NV (ING.AS: Quote, Profile, Research) and the government, which earlier this month set aside 20 billion euros for capital injections.

Aegon, based in The Hague, will get the 3 billion euros to shore up its capital but will have to repay the government at a premium, or pay a steep 8.5 percent interest rate.

Shares in Aegon closed down 14 percent at 2.91 euros, a level not seen since 1992. The DJ Stoxx European insurance index dropped 4.1 percent.

The capital injection will be in the form of special securities which Aegon may convert into common shares after three years, prompting concerns of earnings per share dilution and weighing on the share price, said Corne van Zeijl, fund manager at SNS Asset Management.