Banks, commods drag European shares sharply lower

* FTSEurofirst 300 index falls 2 pct

* Banks, commods slip on global recovery concerns * For up-to-the-minute market news, click on [STXNEWS/EU]

By Joanne Frearson

LONDON, Aug 17 (Reuters) - European shares fell in early trade on Monday, retreating for a second day with banks and commodities the main fallers as investors became cautious on global recovery hopes.

By 0847 GMT, the FTSEurofirst 300 <.FTEU3> index of top European shares was down 2 percent at 922.63 points, having earlier fallen to 920.75 points. The index was on track to post its biggest one-day percentage drop since July 2.

In Asia, Chinese stocks <.SSEC> slid 5.8 percent, while Japan's Nikkei average <.N225> shed 3.1 percent.

"There is now a realisation that coming out of a recession is one thing, but building a recovery is another," said Justin Urquhart Stewart, director at Seven Investment Management.

"We are now down to how companies are going to grow. The growth we have seen out of Japan as well as Europe looks like it has been primarily based on government stimulation... the question is, is this sustainable?" he said.

Banks took the most points off the European index, with HSBC , UBS , Credit Suisse , Barclays and Banco Santander down 2.2 to 3.2 percent.

Miners were in the doldrums as metal prices retreated on demand concerns, with Anglo American , Antofagasta , BHP Billiton , Rio Tinto and Xstrata losing 3.3 to 4.3 percent.

Fresnillo was 2.1 percent lower after it posted a 14 percent decline in first-half attributable net profit, but the firm was upbeat about the remainder of the year.

OILS RETREAT

Energy stocks were also lower as crude slipped below $67 a barrel. BG Group , BP , Royal Dutch Shell and Total were down 1.5 to 2.5 percent.

On the upside, Dutch biotech firm Crucell was 3.4 percent higher after the company won key vaccine contracts.

Nobel Biocare gained 2.6 percent after Banc of America-Merrill Lynch added the company to its "Europe 1 list".

Across Europe, the FTSE 100 <.FTSE> index was down 1.5 percent, Germany's DAX <.GDAXI> and France's CAC 40 <.FCHI> were down 1.7 percent.

On the macro front, data showed Japan's economy returned to growth in the second quarter, ending its longest recession since World War Two, but analysts warned of a rocky road ahead as the nascent recovery was based on short-term stimulus efforts around the world. [ID:nLH338906]

Later in the session investors may focus on the Empire State Manufacturing Survey for August released at 1230 GMT. Economists in a Reuters survey expect a reading of 2.50 compared with -0.55 in July.

The U.S. National Association of Home Builders/Wells Fargo August housing market index is out at 1700 GMT. Economists in a Reuters survey expect a rise to 18 compared with 17 in July.

U.S. stock index futures lost 1.7 to 1.9 percent, pointing to a weaker start on Wall Street.

The FTSEurofirst 300 <.FTEU3> index, which is up nearly 11 percent year-to-date, has risen 43 percent since reaching a floor in early March. (Editing by Hans Peters)