* FTSEurofirst 300 falls 1 percent; hovers below 1,000 mark
* Financial shares among top decliners
* Energy, mining shares slip; weaker commods prices weigh
By Atul Prakash
LONDON, Sept 21 (Reuters) - European shares extended their retreat from recent peaks on Monday, with a key index falling below the 1,000 mark, as investors moved away from risky assets ahead of a U.S. Federal Reserve meeting and G20 summit.
Concerns that the recent stock market rally might have gone ahead of an economic recovery prompted investors to cut their exposure into stocks and taking refuge in assets such as the dollar. Weaker commodity prices also put pressure on the market.
The VDAX-NEW volatility index, jumped 6 percent to a week high. The higher the volatility index, which is based on sell and buy options on Frankfurt's top-30 stocks, the lower is investors' appetite for risks.
By 1122 GMT, the FTSEurofirst 300 of top European shares was down 1 percent at 996.73 points after falling 0.5 percent on Friday. The index rose above 1,000 on Wednesday after an 11-month gap and hit a year high of 1,013.63 a day later.
The index has rallied 55 percent since hitting a record low in March and is up 17.4 percent this quarter, on track to post its best quarterly rise in almost a decade.
"We had a very good momentum for the stock market on the back of predominantly positive macroeconomic outturns," said Edmund Shing, equity strategist at BNP Paribas, in Paris.
"There are some signs that certain sensitive sectors that have outperformed the most are trend reversing. But it's not a big shock and too early to say on the back of one or two days."
Financial stocks were among top decliners, with Standard Chartered, HSBC, Barclays, Lloyds, BNP Paribas, Societe Generale and KBC Groep slipping 1.1-4.1 percent.
Royal Bank of Scotland fell 4.4 percent. A source familiar with the situation said it was talking to investors to gauge support for a "modest" equity placement of 3 billion to 4 billion pounds ($4.9 billion-$6.5 billion).
SEB was down 1.8 percent. The bank said it planned to buy back $1.1 billion in debt in a move to boost its core capital buffers. It also said it would also issue non-innovative euro denominated capital contribution debt.
COMMODITY SHARES UNDER PRESSURE
Miners came under pressure following lower metals prices, which fell on concerns about rising inventories and a firmer dollar. Anglo American, Antofagasta, Rio Tinto and Xstrata fell 0.3-3.4 percent.
BHP Billiton was down 2 percent. A Wall Street Journal report said BHP Billiton planned to use part of a cash surplus of around $18 billion to fund a round of acquisitions, possibly involving some large rivals.
Investors awaited the outcome of a meeting of the Group of 20 leaders on Thursday and Friday in Pittsburgh. U.S. President Barack Obama said on Sunday he would push world leaders for a reshaping of the global economy in response to the crisis.
A Fed meeting this week is also in focus. The U.S. central bank is expected to keep its benchmark Fed Funds rate unchanged at 0.25 percent, and investors are looking for signs of how quickly it might remove its extraordinary programmes to revive lending and hiring.
"We are still quite bullish," said Nick Nelson, European equity strategist at UBS.
"The market might look slightly overbought near term, but the economy is definitely improving, corporate profits are definitely improving, interest rates are staying low and valuations aren't expensive."
Energy shares tracked crude oil prices, which fell below $71 a barrel on growing concerns about the pace of economic recovery and signs of weak fuel demand.
BG Group, Tullow Oil, Repsol, Total and StatoilHydro shed 0.1 to 2.1 percent.
But Bank of England Monetary Policy Committee member Andrew Sentance said there are big upside risks to energy prices when the global economy recovers.
Volkswagen lost 3.6 percent. German industry publication Automobilwoche quoted an unnamed Japan's Suzuki Motor executive as saying the German automaker was expected to take a stake in Suzuki by the end of 2009.
Across Europe, Britain's FTSE 100 index, Germany's DAX and France's CAC 40 fell 0.7-1.2 percent. (Additional reporting by Dominic Lau; Editing by Hans Peters)