(Reuters) - Shares in BNP Paribas fell after French financial media Les Echos on Tuesday reported the Belgian government is considering selling its shares to set up a defence fund.

Shares in the French lender were down 2.6% around 0816 GMT, while the European Stoxx banking index shed 1.1%. Traders attributed BNP's sharper selloff to the report of the possible Belgian sale.

The stock had been boosted by a 32.5% rise since the beginning of the year, as of Tuesday's close, peaking at an 18-year high last week.

Through its financial arm, SFPIM, Belgium currently holds a 5.6% stake in the French lender, following the group's acquisition of Fortis Bank Belgium in 2009.

The Belgian government didn't immediately reply to a request for comment.

At current market value, the disposal of the 63.3 million shares would be valued at around 4.84 billion euros ($5.22 billion).

Belgium is looking for options to fund its planned increase in defence spending, in order to reach 2% of its gross domestic product this year, the minimum level agreed among NATO allies.

($1 = 0.9269 euros)

(Reporting by Alban Kacher, Jakob Van Calster and Charlotte Van Campenhout; Editing by Ros Russell)