Europe shares down 7 pct in global plunge; G7 eyed

* FTSEurofirst 300 down 7 pct; hits lowest since July 2003

* Financials under pressure as credit market problems remain

* Oil stocks plunge as crude declines sharply

By Tyler Sitte

FRANKFURT, Oct 10 (Reuters) - European stocks dived by more than 7 percent midday on Friday, swept up in a global panic sell-off as investors feared governments' efforts to thaw credit markets would fail to ward off a global recession.

Fragile banks and insurers were among the biggest fallers, as discouraging news in the insurance sector worried investors of significantly lowered earnings.

Miners, meanwhile, led the drop as the European basic resource sector slumped 9.5 percent.

"The market is catching up with the grim reality that this isn't going to be a mild downturn," said James Hamilton, bank analyst at Numis.

At 1122 GMT, the pan-European FTSEurofirst 300 index .FTEU3 was down 7.24 percent at 854.64 points, after falling more than 9 percent in early trade and hitting its lowest level since July 2003.

The index has fallen more than 21 percent so far this week and is on track for its worst week on record, in a credit crisis that has frozen interbank lending, hammered banks and slowed the global economy.

Insurers followed banks as some of the worst underperformers, under pressure after the second largest U.S. insurer, Prudential Financial (PRU.N: Quote, Profile, Research, Stock Buzz), warned on quarterly profits on Thursday, sending its shares down by more than 23 percent.

This was followed by news on Friday that Japan's Yamato Life Insurance Co, an unlisted midsized insurer, became the first Japanese financial institution to collapse due to global market turmoil stemming from the subprime crisis.

"The two events were a one-two punch on the insurance sector and this was compounded by price target downgrades from several brokerages," said a Frankfurt-based trader.

Allianz (ALVG.DE: Quote, Profile, Research, Stock Buzz) was 12.6 percent lower, leading the sector lower, while Axa (AXAF.PA: Quote, Profile, Research, Stock Buzz) was down 12 percent and the world's second-largest reinsurer Munich Re (MUVGn.DE: Quote, Profile, Research, Stock Buzz) shed 11.6 percent.

General Electric (GE.N: Quote, Profile, Research, Stock Buzz), a bellwether for the U.S. economy, posted a profit drop in line with its recently cut forecast.  Continued...