Banks, commods drag European shares lower

* FTSEurofirst 300 index down 1.3 pct

* Banks, commods lower

* DSM gains on Q3 improvement

By Joanne Frearson

LONDON, Sept 24 (Reuters) - European shares fell in early trade on Thursday, with lower crude prices weighing on energy stocks and banks under pressure.

By 0828 GMT, the pan-European FTSEurofirst 300 <.FTEU3> index of top shares was down 1.3 percent at 993.12 points.

The index has soared 54 percent since tumbling to a record low last March, but is still down 39 percent for a multi-year peak reached in mid-2007.

"It's a dose of reality. Although there is cash out there, investors are saying no thank you, we have gone high enough and want to take money out of the market," said Justin Urquhart Stewart, director at Seven Investment Management.

Banks took the most points off the index. HSBC , UBS , Deutsche Bank and Banco Santander were down 1.3 to 2.3 percent.

Deutsche Bank lost 2.5 percent. The bank's Chief Executive Josef Ackermann said in an article published in Swiss daily Neue Zuercher Zeitung that heavier regulation would result in lower profits for banks. His comment came ahead of a meeting of the Group of 20 nations that will discuss how to regulate the sector.

Energy stocks were lower as crude extended losses and fell towards $68 a barrel. BG Group , Repsol , Cairn Energy and Total slipped 0.5 to 2.3 percent.

Mining stocks were under pressure tracking lower metal prices on demand concerns. Copper fell 0.8 percent, aluminium lost 1.4 percent and nickel was down 2.36 percent.

Anglo American , Antofagasta , BHP Billiton and Rio Tinto were 1 to 1.6 percent lower.

Across Europe, the FTSE 100 <.FTSE> index was down 0.8 percent, Germany's DAX <.GDAXI> was 1.2 percent lower and France's CAC 40 <.FCHI> slipped 1 percent.

FED

Also weighing on the market was investor concerned that the Federal Reserve is closer to pulling back on extraordinary measures to inject funding to shore up the economy.

The Fed's policy-setters met and kept interest rates unchanged, as expected, but they also said the U.S. central bank would slow purchases of mortgage debt to extend that program's life until the end of March. [ID:nN23390829]

"The Fed did not give any surprises, but nothing positive as well," said Bernard McAlinden, market strategist at NCB Stockbrokers.

On the upside, Dutch chemicals group DSM gained 2.6 percent after it said that customer demand continued to improve in the third-quarter and it expected operating profit from continuing operations to be double that of the previous quarter.

Later in the session, leaders of the world's biggest countries meet for the two-day G20 summit in Pittsburgh to seek ways to nurture the recovery from the worst recession since the 1930s and build safeguards against future catastrophes. [ID:nN24427327]

Investors will also watch U.S. existing home sales for August at 1400 GMT, with economists in a Reuters survey forecasting a 5.35 million annualized unit total versus 5.24 million annualized units in July.

Meanwhile, German business sentiment rose to its highest level in a year in September but fell short of expectations for a stronger rise. [ID:nBEB002457] (Editing by Mike Nesbit)