* FTSEurofirst 300 down 0.3 pct, Euro STOXX falls 0.6 pct
* FTSEurofirst 300 on track for worst weekly drop since Nov
* Worries over Cyprus dent sentiment
* BP gains cushion markets from bigger losses
By Sudip Kar-Gupta
LONDON, March 22 (Reuters) - European shares dipped on Friday, putting a key index on track for its worst weekly drop since November, as growing worries over Cyprus' bailout problems dented sentiment.
The pan-European FTSEurofirst 300 index fell 0.3 percent to 1,187.08 points, putting it on track for its worst weekly drop since November, while the euro zone's blue-chip Euro STOXX 50 index fell 0.6 percent to 2,666.75 points.
However, a 1.6 percent rise at BP, after the heavyweight oil major said it would return $8 billion to shareholders, cushioned equity markets from bigger losses.
Cyprus needs to find 5.8 billion euros ($7.50 billion) in new money by a Monday deadline if it is to receive an EU bailout to avert a collapse of its financial system that could push it out of the euro zone, having earlier rejected a plan to raise the funds by taxing bank customers' deposits.
Most investors expect an eventual deal to help Cyprus, leading the majority to believe that any equity market fall in March and April will be a temporary one before stock markets resume an upwards trajectory as the year progresses.
A Reuters poll this week forecast that the Euro STOXX 50 index would rise to 2,800 points by the middle of 2013 and would end the year at 2,935 points.
However, uncertainty over how the Cyprus situation may unravel - highlighted on Friday by a failure from Cyprus to get a funding lifeline from Russia - has led investors to sell shares to book profits on a rally on stocks so far this year.
"I would sell on the rallies. With all this uncertainty over Cyprus, the markets will be going a touch lower again," said Berkeley Futures associate director Richard Griffiths.
Griffiths said Germany's DAX, which was down 0.2 percent at 7,916.77 points, could fall to 7,750 points early next week and added clients were buying "put" options, which are often used to bet on a future fall in an asset or to protect against such a move.
Banc de Binary senior broker David Knight also said the Cyprus situation would dent equity markets in the near-term, even in light of signs that the economy of Germany - the biggest in Europe - has so far proven to be relatively robust.
"The markets are looking for a correction and Cyprus is compounding that feeling," he said.
Lee Robinson, founder of asset management firm Altana Wealth, said a default in Cyprus would send investors seeking shelter in assets perceived as safe, such as German and U.S. government bonds .
Robinson has been seeking protection against possible swings in share prices by buying implied volatility, an index which moves in the opposite direction to cash equities and is based on option contracts.
"Volatility to me is a very underpriced asset given the potential outcomes globally," he said. (additional reporting by Francesco Canepa/editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)