* FTSEurofirst 300 off 0.6 pct, set for 7th week of falls
* Peripheral banks lead sector lower
* For up-to-the-minute market news, click on [STXNEWS/EU]
By Harpreet Bhal
LONDON, June 16 (Reuters) - European shares fell for a second session on Thursday, with banks among the heaviest casualties as worries intensified that Greece's debt troubles were worsening, stoking contagion fears.
Banking stocks were under pressure, with the STOXX Europe 600 banking index <.SX7P> down 0.6 percent, while peripheral banks <.TRXFLDPIPUBANK> fell 1.2 percent.
Nout Wellink, governing council director of the European Central Bank, told a Dutch newspaper new Greek aid would carry so many uncertainties and risks that a doubling in the bailout fund would be necessary to take into account contagion risks. [ID:nLDE75F03M]
Financial markets are worried policymakers will be unable to agree on plans to rescue Greece, and about the possible contagion effect a Greek default would have on other highly indebted euro zone countries.
"There is quite a bit of panic in the market and people are talking about a Lehman (Brothers)-type contagion if Greece goes bust," said Markus Huber, senior trader at ETX Capital.
The collapse of Lehman in September 2008 sent shockwaves through the global financial system and markets went into a tailspin.
Political uncertainty worsened in Athens after the Greek prime minister said on Wednesday he would form a new government and seek a vote of confidence from his parliamentary group as protests against austerity measures turned violent. [ID:nLDE75E0JC]
By 0803 GMT, the pan-European FTSEurofirst 300 <.FTEU3> index of top shares was down 0.6 percent at 1,082.29 points, after closing 1.1 percent lower on Wednesday.
The index is on track to fall for a seventh straight week, its longest losing streak since January 2008, on escalating concerns about Greece's debt troubles and worries about a slowing in the pace of global economic recovery.
It has gained in only three sessions in June and has lost 5.2 percent since the beginning of the month.
The Euro STOXX 50 volatility index <.V2TX> rose 5.8 percent and earlier hit a near-four-week high, reflecting heightened risk aversion.
Risk-sensitive mining shares also fell, with stocks on the STOXX Europe 600 basic resources index <.SXPP> down 1.3 percent as copper prices came under pressure.
Investors are likely to keep an eye on a bond auction in Spain for an indication of sentiment towards peripheral countries. Spain will sell up to 3.5 billion euros of 2019 and 2026 bonds.
Greece's 5-year credit default swap rose to a record high at 1,850 bps. Portuguese and Irish CDS also hit record highs.
LITTLE CHEER
Technical indicators for equities provided little cheer for investors, as the 200-day moving average on the FTSEurofirst 300 inched closer towards breaking above its shorter-term 50-day moving average.
A convergence of the two indicators, known as a "death cross", points to a bearish trend on the horizon where the longer-term moving average is likely to become a resistance level.
Major equity indexes have been stuck in a narrow range this year, with the trendless market proving a headache for fund managers.
"Broad indices are moving sideways. The spread between the best and worst-performing sectors and regions has diminished, and price momentum strategies are fading. Fund managers are finding it hard to adapt to trendless markets and many are underperforming," Citi strategists write in a note.
"Trendless markets are normal at this stage of the cycle. This is usually a time when stock prices grind higher with EPS, rather than surge. The last time we were in (this) phase in 2004-2006, equity markets again lacked clear direction."
(Editing by David Hulmes)