UPDATE 3-European stocks shed $1.5 trillion as virus fears spur week-long selling frenzy

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* STOXX down 12.2% for week, worst week since 2008

* British Airways owner IAG slumps after flagging hit from virus

* Travel and leisure stocks worst weekly performers

* Rolls-Royce among rare gainers (Adds details, updates to close)

By Ambar Warrick and Sruthi Shankar

Feb 28 (Reuters) - European shares ended the week down roughly $1.5 trillion in their worst weekly performance since the 2008 financial crisis as the rapid spread of coronavirus outside China saw sustained selling on fears of a recession.

The pan-regional STOXX 600 index .STOXX fell 3.5% on Friday, deepening its slide into correction territory with a 13.2% plunge from a record high hit on Wednesday last week.

"The move today, and the week-over-week move is driven by systematic, self-enforcing flows. We have seen a significant amount of position reduction (this week)," said Philipp Brugger, head of investment strategy at Union Investment.

All European sub-sectors were well in the red, with chemicals .SX4p , insurance .SXIP and telecom .SXKP leading losses for the day, shedding more than 4% each.

Germany's BASF BASFn.DE was among the biggest percentage losers in the chemical subindex after it warned that earnings could drop further this year. and leisure stocks .SXTP underperformed their peers by a wide margin over the week, dropping about 18%.

Airlines were the worst hit, with the situation intensified after British Airways owner IAG ICAG.L said its earnings would take a hit this year as passenger numbers tumbled. stock fell 8.4% on the day, while other airlines Easyjet PLC EZJ.L , Air France AIRF.PA , and Lufthansa AG LHAG.DE dropping between 0.9% to 6.4%.

Milan-listed shares .FTMIB fell 3.6%. The number of people infected in Italy, Europe's worst hit country, surpassed 850 on Friday.

German stocks .GDAXI dropped 3.9% as the number of cases in the country rose to 60. Insurer Munich Re MUVGn.DE was among the worst performers for the day after its fourth-quarter profit dropped. publisher Lagardere SCA LAGA.PA bottomed out the STOXX 600 after reporting lower 2019 revenue. The firm also appointed former French president Nicolas Sarkozy to its advisory board. and automobile maker Rolls-Royce RR.L was among the few gainers, ending up 3.2% after saying it was well placed to deal with disruptions caused by the epidemic. investors have ramped up expectations for a euro zone rate cut as soon as June in response to the virus, two ECB policymakers said on Friday that the bank does not need to take immediate action in response to the epidemic. ECB situation has the additional challenge that they do not have so much powder left, and in general the threshold for them to move on an interest rate side is really high," Union Investment's Brugger added.

The World Health Organization warned that the virus had pandemic potential, and ratings agency Moody's saying it would trigger a global recession in the first half of the year.