Growth jitters send European stocks down 2.6 pct

* FTSEurofirst 300 sinks 2.6 pct on economic growth jitters

* Index ends at lowest closing level since July 17

* Banking, industrial shares among the most hit

By Blaise Robinson

PARIS, Sept 4 (Reuters) - European shares sank 2.6 percent on Thursday, ending at their lowest closing level since July 17, on intensifying worries over growth in both the euro zone and the United States.

The FTSEurofirst 300 .FTEU3 index of top European shares closed 2.6 percent lower at 1,151.30 points, with industrials and banking stocks taking a beating.

UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) dropped 5.4 percent, Barclays (BARC.L: Quote, Profile, Research, Stock Buzz) shed 6 percent, Banco Santander (SAN.MC: Quote, Profile, Research, Stock Buzz) fell 4 percent, and Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) sank 3.9 percent.

Following the European Central Bank's decision to keep interest rates on hold at 4.25 percent, ECB President Jean-Claude Trichet said the euro zone economic data pointed to a weakening in growth at mid-year but inflation remained high and risks are to the upside.

Stocks were also sharply down at midday on Wall Street, dragged by signs of deterioration in the U.S. labour market and worries over the outlook for corporate profits.

"We might be entering the third phase of this bear market, during which corporate investments could suffer," said Oddo Securities analyst Sebastien Thevous-Chabuel, in Paris.

New ECB staff economic projections showed an increase in inflation forecasts and a cut in growth expectations compared with their last prognosis three months ago.

Adding to the downward pressure on banking stocks, the ECB unveiled plans to toughen the rules on the assets banks can submit as collateral in central bank lending operations.

Shares of European industrial groups were among the biggest losers, with ABB (ABBN.VX: Quote, Profile, Research, Stock Buzz) down 4.8 percent and Alstom (ALSO.PA: Quote, Profile, Research, Stock Buzz) down 6.2 percent.

Investors were also nervous ahead of key U.S. monthly jobs data, expected on Friday.

Data showed on Thursday U.S. private employers cut 33,000 jobs in August, a figure that may not bode well for Friday's payrolls data, which economists expect to show a decline 75,000 jobs in August. That would make August the eighth consecutive month of job losses for the world's biggest economy.  Continued...