European stocks fall as banks falter

* FTSEurofirst 300 down 1.7 percent, banks top losers

* Worries of more losses, capital raising hit financials

* Fears crisis to spill over to company earnings

By Patrizia Kokot

LONDON, July 8 (Reuters) - European shares were stuck deep in negative territory by midday on Tuesday, with banks leading a sell-off in global equities as investors grew increasingly uneasy about the outlook for the sector.

By 1106 GMT, the FTSEurofirst 300 index of top European shares was down 1.7 percent at 1,158.73 points, having fallen earlier by as much as 2.6 percent.

Banks fell to their lowest in 5 years, stripping some 20 percent off the FTSEurofirst as speculation over further capital hikes in the sector heightened on the back of a bearish note from Lehman Brothers and aggravated by comments from Janet Yellen - a top Federal Reserve policy maker.

"Financials will of course be a big factor because there are fears of further writedowns when we see earnings next week and it will keep markets on a back foot," said Cantor Fitzgerald chief global market strategist Stephen Pope.