Europe stocks close lower; financials fall

* FTSEurofirst falls 0.4 pct, lowest close since May 13

* Banking, insurance shares lose ground

* Drugmakers gain; GlaxoSmithKline up after drug deal

By Brian Gorman

LONDON, June 23 (Reuters) - European shares fell to their lowest close in nearly six weeks on Tuesday, with financials suffering most, and with home sales data in the United States casting further doubt on the strength of the economic recovery.

The FTSEurofirst 300 <.FTEU3> index of top European shares fell 0.4 percent to 833.67 points, the lowest close since May 13. But it is still up more than 29 percent from its lifetime low on March 9.

The heavyweight banking and insurance sectors suffered from the renewed pessimism on economic recovery.

BNP Paribas , Banco Santander , Barclays , Credit Suisse , Deutsche Bank and Standard Chartered fell between 1.7 and 3.4 percent.

"After the sharp rally, my view was that there would be a minor correction," said Bob Parker, vice chairman of asset management at Credit Suisse.

"This will last until mid to late August. Markets were discounting too sharp an economic recovery. The pace of the recovery is going to be mediocre."

Sales of previously owned homes in the United States rose at a slower-than-expected pace in May, an industry survey showed. A separate survey of manufacturing sentiment from the Reserve Bank of Richmond gave mixed signals. [ID:nLN392294]

"It's right to say that the U.S. housing market is forming a bottom, but it's wrong to say that it's forming a bottom and is then going to recover sharply," said Parker.

European macroeconomic news was also downbeat.

French consumer spending fell unexpectedly in May and a recovery in the euro zone services sector stalled in June, with the Purchasing Managers Index slipping to 44.5. [ID:nLN873343]

Parker also pointed to worries about central banks' exit strategies.

Governments and central banks worldwide have slashed interest rates and spent billions on stimulus packages in their efforts to combat recession.

The European Central Bank is not preparing to unwind its support for the economy now but will be ready when the time comes, Governing Council Member Christian Noyer said on Tuesday. [ID:nLN588501]

The ECB has cut its benchmark interest rate to 1 percent.

Policymakers are concerned about fallout from generous spending by governments, and ECB President Jean-Claude Trichet warned on Sunday there was no room for more debt. [ID:nLL389299]

PHARMAS RISE

Drugmakers helped limit the index's losses, led by GlaxoSmithKline , up 1.6 percent. The company has signed a deal with Chroma Therapeutics, giving it access to the unlisted British biotech company's experimental compounds for inflammatory diseases such as rheumatoid arthritis.

Others in the sector to rise included AstraZeneca , Merck , Novartis and Shire , up 0.8 to 2.2 percent.

Broker downgrades sent insurers lower. Swiss Life fell 5.1 percent after UBS cut it to "sell" from "neutral".

Legal & General ended 7.9 percent lower after SocGen downgraded it to "sell" from "hold".

Other insurers to fall included Swiss Re , Axa and Zurich Financial , down between 1.3 and 2.3 percent.

A slight bounce for oil prices , trading around $67.91 late in the session, was not enough to stop energy shares falling.

BP , Royal Dutch Shell and StatoilHydro fell between 0.6 and 1.9 percent. Across Europe, Germany's DAX <.GDAXI> gaind 0.3 percent, and Britain's FTSE 100 <.FTSE> and France's CAC-40 <.FCHI> fell 0.1 and 0.2 percent respectively.

As European bourses were closing, The Dow Jones <.DJI>, S&P 500 <.SPX> and Nasdaq Composite <.IXIC> were down between 0.2 and 0.5 percent. (Additional reporting by Atul Prakash; Editing by Hans Peters)