GLOBAL MARKETS-China shares plunge, Europe eyes crunch ECB meeting

* Chinese shares plunge 7.7 percent

* Europe gears up for ECB, Greek election

* Bond yields hit new lows

By Jamie McGeever

LONDON, Jan 19 (Reuters) - Chinese shares chalked up their biggest one-day slide in nearly seven years on Monday after regulators there took steps to rein in speculative lending, while investors everywhere braced for what is shaping up to be a critical week in the euro zone.

Expectations are high that the European Central Bank will unveil a bond-buying stimulus package at a crunch policy meeting on Thursday, while the anti-bailout party Syriza maintains a lead in the polls going into Greece's general election on Sunday.

Investors focused more on the anticipated quantitative easing, or 'QE', from the ECB than the plunge in Chinese shares or jitters over the Greek vote - some euro zone government bond yields hit new lows and German stocks reached a new high.

A U.S. holiday also made for relatively thin conditions at the start of a week in which investors continue to digest the fallout of the Swiss National Bank's shock decision last week to scrap the franc's exchange rate cap and that will be marked by a barrage of major data from China and elsewhere.

"The main speculation now is likely to be around the flavour of any ECB action at Thursday's meeting," said Michael Hewson, chief markets analyst at CMC Markets in London.

"European markets have started a new week on the front foot increasingly confident that the ECB will announce a bond buying program. This is being reflected in early trading by new record lows in European yields and fresh all-time highs in the German DAX," he said.

In early European trade the Spanish 10-year government bond yield hit a new low of 1.47 percent and Italy's benchmark yield fell as low as 1.62 percent.

The QE speculation kept the euro anchored near last week's 11-year low, and it was trading unchanged from Friday's New York close around $1.1575.

The common currency rose 1 percent against the Swiss franc to 1.0020 francs, after tumbling 17 percent last week when the SNB abandoned its cap on the franc.

European stocks shrugged off China's tumble, with Germany's DAX up 0.5 percent at a new high of 10,220 points, Britain's FTSE 100 index also up 0.5 percent at 6,581 points , and France's CAC 40 was up 0.2 percent at 4,382 points ,

The FTSEurofirst index of leading 300 European shares was up 0.5 percent at 1,414 points. Shares in Julius Baer were among the top gainers after the Zurich-based private bank said it did not suffer any losses after the SNB's move.

CHINESE STOCKS SLUMP

Earlier in China, financial shares were slugged as Beijing cracked down on credit products that have been blamed for fuelling excessive market speculation over the past three months.

The Shanghai market and the CSI300 index of the largest listed companies in Shanghai and Shenzhen both plunged 7.7 percent, their biggest falls since June 2008.

Adding to the air of caution was Sunday data showing Chinese new home prices in December fell an average 4.3 percent year-on-year in 68 of the 70 major cities monitored.

That was just an appetiser to Tuesday's report on gross domestic product which is expected to show China's annual growth slowed to 7.2 percent in the last quarter, meaning full-year growth would undershoot Beijing's 7.5 percent target and would be weakest in 24 years.

MSCI's broadest index of Asia-Pacific shares outside Japan erased early gains to close 0.3 percent lower, even as markets across much of the region edged higher.

China-led nervousness in Asia boosted the Japanese yen. The dollar was down a third of one percent at 117.20 yen, and the 10-year Japanese government bond yield hit a new record low of 0.2 percent.

But the main event of the week will be Thursday's ECB meeting. Sources have told Reuters the ECB may adopt a hybrid approach - buying debt and sharing some of the risk across the euro zone while national central banks make separate purchases of their own.

There has also been talk the programme would be limited in size to 500 billion euros, an amount that would almost certainly disappoint investors eager for bold measures.

Just to make the challenge all the greater, the Greek general election is due on Jan. 25 and could see the anti-bailout Syriza party win but without a controlling majority.

"Staying in the euro, being in power and undoing the bailout programme is an 'impossible trinity' for Syriza. That's inconsistent, so one of these three has to give," said Morgan Stanley in a note to clients on Monday.

Oil prices were weak as Brent and WTI crude futures both fell 1.2 percent to $49.58 and $48.03 a barrel, respectively.

To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting for the MacroScope Blog click on http://blogs.reuters.com/macroscope for Hedge Fund Blog Hub click on http://blogs.reuters.com/hedgehub (Reporting by Jamie McGeever, additional reporting by Wayne Cole in Sydney; Editing by Toby Chopra)