European shares fell on Friday after a fresh pledge of support from leading global economies to shore up the financial sector failed to placate markets, leaving them on course for a fifth straight month of losses.

Adding to the gloom were comments from Deutsche Bank suggesting European lenders could face a bigger than expected writedown on their Greek debt holdings, as talk of a Greek default intensified.

The Group of 20 leading economies, meeting in Washington, said they would take all the necessary steps to boost market confidence while the euro zone would look at ways to boost the effectiveness of the region's bailout fund.

Given the scale of the previous session's selloff, the news was enough to spark a tentative rally at the open on Friday, although the lack of detail meant conviction was low and sellers soon emerged to push the market to fresh 26-month lows.

It's the usual platitudes... but they don't have the political capital to do what they need to do, which is bail out the southern European countries and recap all the banks. I think it's a complete nonsense, Andrew Lim, banks analyst at Espirito Santo said.

The short-term funding market is dying for some banks, and the wholesale funding market has also pretty much dried up, he added.

French, Italian and Spanish banks were all at risk, he added, and while some bottom fishers in search of bargains were taking long-only bets on the sector, most people were out of the market, including hedge funds.

At 1108 GMT, the FTSEurofirst 300 index of leading European shares was down 1.6 percent at 859.33 points, just off its low of 856.97, a fresh 26-month low. It had closed Thursday down 4.7 percent.

The weakness prompted a fresh rise in the Euro STOXX 50 volatility index, up 5.7 percent to 50.48. The higher the volatility index, the lower investor appetite for risk.

Implied volatility had risen sharply after the Thursday selloff, with that for Germany's DAX up 9.3 percent, for Britain's FTSE 100 up 20 percent and for the French CAC-40 up 10 percent.

In comparison with the cash market, however, volatility had been extremely well behaved, Franck Lacour, head of derivatives at HSBC, said.

It feels like most of the directional players are either out of the market or very well protected. You haven't had the kind of panic in the volatility market like you had in 2008.

If the market moves another 10 percent down, then it could become more difficult, because then people will have a lot less effective protection and more risks.

From a chart perspective, the Euro STOXX 50 index of leading blue-chip shares, down 1.3 percent at 2,001.55, had support at 2,000, Dmytro Bondar, technical analyst at RBS, said.

Short-to-medium term players remain bearish, however, which points to a conclusion that should the 2,000 level be broken on a close basis, there will be more room for a drop to our next target at 1,810, which is a Fibonacci projection from the Dec'07 - Jan'08 impulse wave, Bondar said.

(Additional reporting by Joanne Frearson; Editing by Mike Nesbit)

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