European shares drop on fresh Italian crisis

PARIS, Sept 30 (Reuters) - European shares sank in early trade on Monday, falling for the fifth time in seven sessions, as a new political crisis in Italy and the prospect of a shutdown of the U.S. government rattled investors.

At 0708 GMT, the FTSEurofirst 300 index of top European shares was down 0.7 percent at 1,245.47 points. Italy's FTSE MIB (Milan: FTSEMIB.MI - news) dropped 2 percent.

Political instability in Italy deepened on Saturday when the five Cabinet ministers who are from former Prime Minister Berlusconi's party suddenly stepped down, threatening to bring down the government and force new elections seven months after the last vote.

Euro zone banking stocks were among the most hit, with the sector index losing 2.6 percent. Banco Popolare (Milan: BP.MI - news) was down 4.5 percent, Commerzbank (Xetra: CBK100 - news) down 2.5 percent and Societe Generale (Paris: FR0000130809 - news) down 1.8 percent.

In Washington, chances that Republicans and Democrats could reach a deal on funding the government before the fiscal year ends at midnight on Monday seemed increasingly thin.

On Sunday, the Republican-controlled House of Representatives passed a measure that ties government funding to a one-year delay of President Barack Obama's landmark healthcare restructuring law, while Senate Democrats have vowed to reject it.