* FTSEurofirst 300 off 0.6 percent; near 3-wk closing low
* Airline shares weak on fears over travel, fuel costs
* Strong U.S. consumer confidence limits further losses
By Harpreet Bhal
LONDON, Feb 22 (Reuters) - European shares fell on Tuesday, extending the previous session's hefty selloff on escalating tensions in oil producer Libya, which drove crude prices higher and prompted concerns over the impact on global growth.
The pan-European FTSEurofirst 300 index of top shares ended 0.6 percent lower at 1,164.60 points, its lowest close since Feb. 3.
Brent crude remained at around 2-1/2 year highs on the back of the tensions in Libya, fuelling growth concerns among equity investors.
"If oil prices stay at these levels or even go higher then there would be a question mark about the current global growth forecasts," said Jane Coffey, fund manager at Royal London Asset Management, adding that a $10 rise in oil prices typically takes around 0.5 percentage points off U.S. growth over two years.
Travel firms fell on concerns of disruptions and higher fuel costs arising from the Libyan crisis, with the STOXX Europe 600 travel and leisure index off 1.3 percent, led by a 3 percent drop in Air France-KLM
Italian oil firm ENI, the main foreign oil group in Libya, shed 0.5 percent while Spanish peer Repsol, which said it was shutting down its oil output in Libya, fell 1.2 percent.
Heavyweights BP and Royal Dutch Shell, however, rose 0.2 and 0.9 percent respectively.
"I wouldn't say that the situation in Libya would make me sell the oil companies that I have. Although some of the oil companies are experiencing disruption, they're selling all the rest of the oil that they have for a higher price," said Coffey, who counts BP among her holdings.
Libyan leader Muammar Gaddafi vowed to die in Libya as a martyr in an angry television address on Tuesday, as rebel troops said eastern regions had broken free from his rule in a burgeoning revolt.
The FTSEurofirst 300 has shed 1.8 percent in two straight sessions of losses on concerns over Libya, though the index is still up nearly 4 percent since the beginning of the year.
"It's healthy for the market to take a breather after such strong gains, and as soon as the Libyan crisis eases, stocks should resume their rally," said Jacques Henry, analyst at Louis Capital Markets in Paris.
VOLATILITY RISES
The VDAX-NEW volatility index, a barometer of investor anxiety, gained 3.1 percent, and earlier hit a six-week high as investors' risk appetite sharply dropped.
Individual shares on the downside included BAE Systems, which shed 4.3 percent on concerns more UK defence contracts will be cancelled to meet the British coalition government's goal of slashing military spending.
Upbeat macroeconomic figures, however, provided some upside to the market, with equities paring losses in the afternoon session after the release of data showing U.S. consumer confidence hit a three-year high in February
In Germany, consumer morale was at its most optimistic for years, auguring well for a broad-based economic recovery, but data also suggested workers are increasingly confident wages will rise in 2011, posing inflationary risks.
Germany's MAN rose 2.5 percent as traders pointed to a German newspaper report that Swedish peer Scania may submit a bid for the truckmaker.
Shares on Italy's FTSE MIB continued a sell-off on Tuesday, after the exchange resumed trading in the afternoon following a seven-hour shutdown due to a technical glitch. (Additional reporting by Blaise Robinson in Paris; Editing by Hans Peters)