FRANKFURT, Sept 16 (Reuters) - European shares fell to their lowest level in more than three years by midday on Tuesday with financials .SX7P.SXIP weighing heavily amid ongoing uncertainty about the fate of U.S. financial institutions.

Overnight dollar Libor rates were fixed at 6.4375 percent compared to 3.10625 percent on Monday, hurting bank stocks further.

The FTSEurofirst 300 .FTEU3 index of leading European shares was down 2.6 percent at 1,091.41 points, having earlier hit 1,089.42, its lowest since May 2005.

Britain's FTSE 100 .FTSE sank 3.2 percent to more than three-year lows, while both Germany's DAX .GDAXI and the French CAC 40 .FCHI were down 1.8 percent.

Banks fell 5 percent on the sector index, with British mortgage lender HBOS HBOS.L losing 31 percent and Dutch-Belgian financial group Fortis FOR.AS 14 percent lower. (Reporting by Peter Starck)