LONDON, Jun 20 (Reuters) - (Refiles to correct the technical term to 'dead cross' in crosshead and the subsequent paragraph)
* FTSEurofirst 300 index down 1.1 percent
* Italian underperforms after Moody's threat
* Banks drop after Greek decision delay
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By Joanne Frearson
LONDON, June 20 (Reuters) - European shares fell on Monday, led by banks after euro zone finance ministers delayed a decision on extending emergency loans to Greece and ratings agency Moody's threatened to cut Italy's credit rating.
Investor appetite for riskier stocks fell, with the Euro STOXX 50 volatility index , one of Europe's main gauges of investor anxiety, rising 11 percent to its highest level in three months.
Banking stocks, which have been declining since February, featured among the worst performers after the ministers said Greece would need to introduce harsh austerity measures before it received a 12 billion euro ($17.07 billion) loans tranche.
The STOXX Europe 600 Banks index was down 1.5 percent, while the Thomson Reuters Peripheral Banks index lost 2.8 percent.
A Moody's threat that it might cut Italy's credit ratings over increased borrowing costs as a result of the Greek crisis, intensified fears that the problems of the euro zone's peripheral countries would spread.
Italy's benchmark index dropped 2.4 percent, significantly underperforming the other peripheries; Spain's IBEX 35 was down 1.5 percent, and Portugal's PSI 20 was 1.3 percent lower.
Italian banks were among the worst performers, with Banca Popolare di Milano down 6.5 percent, and Banca Monte dei Paschi di Siena SpA , also affected by the first day of trading of its rights issue, fell 4.9 percent.
By 0846 GMT, the pan-European FTSEurofirst 300 index of top shares was down 1.1 percent at 1,075.13 points, extending losses in early trade after Euronext opened late after a technical glitch.
"They want to make sure Greece is adhering to the package. It is going to be quite a close call if they get the money in time before the country needs funding," said Richard Batty, Global Investment Strategist, Standard Life Investments, which has 157 billion pounds of assets under management.
Investors were also awaiting a confidence vote on Tuesday called for by Greek Prime Minister George Papandreou in a bid to push through the reforms.
"It is not a helpful backdrop; we are underweight European equities," Batty said.
DEAD CROSS
The index's 50-day moving average was also poised to break below the 200-day moving average, seen as a strong bearish technical signal called a 'dead cross', but the index was likely to find support at around 1,065, its low hit in March.
Nomura analysts said in a note the market could be ripe for a rally, with a potential upside of 18 percent for the rest of the year if Greece avoided a near-term default and the recent soft patch of economic data failed to translate into earnings downgrades.
"If the soft economic data is not followed by EPS (earnings-per-share) downgrades and Greece does not default, the upside for stocks is substantial, 18 percent on our projections to the end of 2011," Nomura analysts said. =============================================================
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