* FTSEurofirst 300 falls 1.2 percent after late selloff
* Insurers hammered after ING says to split up company
* VDAX-NEW volatility index jumps as risk aversion returns
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By Blaise Robinson
PARIS, Oct 26 (Reuters) - European stocks fell for a third session in a row on Monday as a sharp drop in oil and a rebound in the dollar sparked a late selloff, with ING sinking 18 percent after it unveiled plans to split up the company.
Insurance shares took a beating after the Dutch bancassurer said it would transform itself into a smaller European lender and launch a 7.5 billion euro rights issue.
Allianz dropped 4.4 percent and Aegon fell 6.5 percent. Banks also ended in the red, with BNP Paribas down 3.7 percent and Credit Suisse down 2.6 percent.
The FTSEurofirst 300 index of top European shares ended 1.2 percent lower at 996.50 points, its lowest closing level in nearly two weeks.
"It's a correction that the market has been waiting for over the past little while," said Jacques Henry, analyst at Louis Capital Markets in Paris, "although the retreat might not last because of the strong inflows that are still coming into equities."
"Investors got the good news they had been hoping for, but now this has all been digested. Meanwhile, analysts are still cautious about the earnings recovery and have not really started to upgrade their forecasts."
Around Europe, UK's FTSE 100 index fell 1 percent while both Germany's DAX index and France's CAC 40 dropped 1.7 percent.
A sudden flight to quality sent the dollar rallying from 14-month lows versus the euro while risky assets such as equities and commodities tumbled.
RISK AVERSION RETURNS
U.S. crude oil futures sank more than $2 a barrel, or 2.7 percent, to $78.31, forcing most energy stocks to surrender early gains, with both Total and Repsol ending down 1.1 percent.
The VDAX-NEW volatility index -- a gauge of investor risk aversion -- jumped 11 percent to a near three-week high.
The higher the volatility index, which is based on sell and buy options on Frankfurt's top 30 stocks, the lower investors' appetite for risky assets.
"We've seen such a tremendous rally in risky assets lately, but now there are rising doubts over next year's economic growth as well as over central banks' exit strategies," said Joost van Leenders, strategist at Fortis Investments.
"Equities might rise a bit further, but overall the post-recession window for a strong stock market rebound is closing, and it's closing sooner than people might have expected."
The FTSEurofirst 300, which is up 20 percent so far this year, has gained 54 percent since reaching a floor in early March, helped by improving macroeconomic data and better than expected earnings.
Among the few stocks gaining ground on Monday, chemical group Akzo Nobel added 1.4 percent on expectations the group will post strong results on Tuesday, traders and analysts said.
Electrolux, the world's second-biggest home appliances maker, surged 6.7 percent after forecast-beating third-quarter earnings.
(Reporting by Blaise Robinson, editing by Atul Prakash, John Stonestreet)