Europe stocks fall 2.4% on credit, inflation fears

PARIS, Aug 19 (Reuters) - European shares dropped 2.4 percent on Tuesday in a broad equities selloff, ending at their lowest closing level in two weeks on renewed credit fears, a steep jump in core U.S. prices and weak U.S. housing data.

The FTSEurofirst 300 .FTEU3 index of top European shares unofficially closed 2.4 percent lower at 1,160.62 points.

Banks took a beating as investors fretted about the fate of the financial sector following a Barron's report that suggested the U.S. government may have no choice but to nationalise mortgage finance giants Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) and Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz).

Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) sank 6.7 percent, Fortis (FOR.BR: Quote, Profile, Research, Stock Buzz) tumbled 4.8 percent and Commerzbank (CBKG.DE: Quote, Profile, Research, Stock Buzz) shed 4.9 percent. The DJ Stoxx bank index fell 4.4 percent.

Data showed on Tuesday that U.S. wholesale prices jumped in July at the fastest year-on-year rate since 1981, while home builders cut back on construction as they worked through a glut of unsold homes.

"Inflation will continue to be a concern, but the real worry is still in the housing market," said Franz Wenzel, strategist at AXA Investment Managers, in Paris.

"We will continue to have bleak data for a while. We know from the Japanese example that a housing slump usually lasts for longer than economists can think of."

(Reporting by Blaise Robinson)