REFILE-Banks lead European shares 1.5 pct lower by midday

(Refiles to change headline share movement to conform with text)

* FTSEurofirst 300 falls 1.5 percent

* Financials weigh on benchmark on continued credit worries

* Chemicals group Ciba sinks after H1 loss

By Sitaraman Shankar

LONDON, Aug 19 (Reuters) - European shares fell by midday on Tuesday, wiping out all gains for the month as worries about the future of the top U.S. home finance groups lengthened the shadow that a year-long credit crunch has cast on global equities.

At 1054 GMT, the FTSEurofirst 300 index of top European shares was down 1.5 percent at 1,171.66 points, on track for its seventh month of losses this year.

Financials were the biggest drag on the index, accounting for nearly half of the index's fall, after a Barron's report that suggested the U.S. government may have no choice but to effectively nationalise mortgage finance groups Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) and Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz).

UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) fell 4 percent, Societe Generale (SOGN.PA: Quote, Profile, Research, Stock Buzz) lost 3.2 percent and Barclays (BARC.L: Quote, Profile, Research, Stock Buzz) 4.5 percent, while poor results from Danish insurer Trygvesta (TRYG.CO: Quote, Profile, Research, Stock Buzz) weighed additionally on insurers.

Axa (AXAF.PA: Quote, Profile, Research, Stock Buzz) fell 3.9 percent while Legal & General (LGEN.L: Quote, Profile, Research, Stock Buzz) and Prudential (PRU.L: Quote, Profile, Research, Stock Buzz) both lost 4.4 percent.

Analysts said the economic situation in Europe continued to be grim and more bad news on financials would not help, but a large amount was already discounted with the FTSEurofirst having fallen 22 percent this year.

"A lot is already in the price -- you've got a negative day today and you might have a positive day tomorrow. We expect European equities to end the year pretty much around these levels," said Heinz Gawlak, head of asset management at Generali Investments Deutschland at Cologne in Germany.

"Stock markets anticipate, and there's a certain oversold level out there," he said, but added that the economic picture remained bleak.

Crude oil CLc1 fell 75 cents to $112.12 a barrel, hitting Total (TOTF.PA: Quote, Profile, Research, Stock Buzz), Royal Dutch Shell (RDSa.AS: Quote, Profile, Research, Stock Buzz) and BP (BP.L: Quote, Profile, Research, Stock Buzz), which fell 0.4-1.4 percent.

But data from Germany showing producer price inflation hit its highest in 27 years highlighted the fact that even a 23 percent decline in oil from mid-July's record highs leaves crude futures 17 percent above where they were this time last year.  Continued...