Europe shares extend sell-off on Fed, ECB worries

* FTSEurofirst 300 down 0.6 pct, Euro STOXX 50 down 0.7 pct

* Robust U.S. data fuels worries of tapering in December

* Lowered euro zone inflation expectations rattled investors

By Blaise Robinson

PARIS, Dec 5 (Reuters) - European stocks fell on Thursday, hitting seven-week lows, as investors fretted about the risk of deflation in the euro zone while healthy U.S. economic data fuelled concern the Federal Reserve may soon start reducing its stimulus.

At 1530 GMT, the FTSEurofirst 300 index of top European shares was down 0.6 percent at 1,265.92 points, losing 3 percent on the week.

The euro zone's blue-chip Euro STOXX 50 index was down 0.7 percent at 2,970.46 points, with Italian and Spanish shares hit hardest.

The retreat was broad-based, with retailers such as Metro (Frankfurt: 62M.F - news) and Ahold (Amsterdam: AH.AS - news) featuring among the top losers, down 4.3 percent and 1.3 percent respectively.

Data showed on Thursday that U.S. GDP grew at an annualized 3.6 percent in the last quarter, the strongest pace since the first quarter of 2012, and well ahead of the 3.0 percent growth expected by economists. Weekly U.S. jobless claims fell for the third consecutive week.

The figures raised concern that the Fed could soon start winding down its monthly bond purchases, which have been fuelling the strong stock market rally in the past year.

"The rising prospect of tapering in December is prompting U.S. investors to repatriate some investments to the United States, and trimming positions on equities from around the world including Europe," said Christian Jimenez, fund manager and president of Diamant Bleu Gestion.

"But the pull-back will last maybe a week or two, because the tapering process will be slow and smooth. It will soon be time to buy again."

Investors were also rattled on Thursday by fresh forecasts from European Central Bank staff predicting that inflation would average just 1.1 percent next year and 1.3 percent in 2015 - well below the ECB's target of close to but below 2 percent.

At a policy meeting, the central bank left interest rates unchanged and ECB President Mario Draghi said the risks to the region's economic outlook were skewed to the downside.

"While deflation seems to be right around the corner, there are growing doubts about the ECB's willingness to act decisively to boost the economy. It's a question of credibility at this point," FXCM (NYSE: FXCM - news) analyst Vincent Ganne said.

"A wave of profit-taking has just started in stocks. But the pullback shouldn't be too violent, except maybe if the Fed tapers later this month."

Around Europe, UK's FTSE 100 index was down 0.1 percent, Germany's DAX index down 0.3 percent and France's CAC 40 down 0.7 percent.

Shares in Vienna Insurance Group (Other OTC: VNRFY - news) fell 5 percent following a placement of 2.29 million shares, representing a 1.8 percent stake in the company.

Bucking the trend, Germany's Merck (Other OTC: MKGAF - news) rose 6.8 percent after unveiling a takeover offer for Britain's AZ Electronic Materials for about 1.6 billion pounds ($2.61 billion), as it seeks to expand its range of specialist chemicals for hi-tech gadgets.