* FTSEurofirst 300 falls 0.7 percent from 10-month high
* Chinese stocks drop weighs on leading European index
* Banks drop; London markets closed for holiday
* For up-to-the-minute market news, click on [STXNEWS/EU]
By Christoph Steitz
FRANKFURT, Aug 31 (Reuters) - European shares fell in morning trade on Monday, with the leading index tracking sharp losses in Chinese stocks, while investors expected a quiet trading session as London markets are closed for a holiday.
At 0824 GMT, the FTSEurofirst 300 <.FTEU3> index of top European shares was down 0.7 percent at 971.88 points after reaching a 10-month high on Friday.
The index has plunged 45 percent in 2008, but is up 17 percent this year, soaring 50.5 percent since reaching a lifetime low in early March.
"The drop in China does have an impact and there is further downside potential in those overvalued stocks," said Giuseppe-Guido Amato, strategist at Lang & Schwarz.
Shanghai-listed shares <.SSEC> fell 6.7 percent and the index also crucially dropped below the 125-day moving average, which is viewed by many domestic investors as the threshold for bear and bull markets. [ID:nSP486633]
"It's really all about how fundamental that correction will be. If it spreads from equities, that would be bad for stocks here," Amato added.
Banks took most points off the FTSEurofirst 300, with BNP
Paribas
Pharma and biotech stocks also weighed and the DJ STOXX Chemicals Index <.SX4P> was the second-biggest sectoral loser, down 1.5 percent.
BAYER FALLS
German Bayer
The DJ STOXX European Auto Index <.SXAP> was the top
sectoral loser, down 1.9 percent, and Volkswagen
The roughly 370,000 employees of Volkswagen and Porsche plan to take a stake of up to 5 percent in the automotive group, VW's labour chief Bernd Osterloh told German newspaper Sueddeutsche Zeitung in an interview. [ID:nLT732067]
Austria's Strabag
"Later on some top down data for Europe and the U.S. might be setting the tone," Heino Ruland, strategist at Ruland Research, wrote in a note.
This will include euro zone flash estimate for August inflation, due at 0900 GMT, as well as the U.S. Chicago PMI for August, due for release at 1345 GMT.
Across Europe, Germany's DAX <.GDAXI> and France's CAC 40 <.FCHI> fell 0.9-1.2 percent. (Additional reporting by Sylvia Westall in Vienna; Editing by Mike Nesbit)