European shares hit 8-week closing low; banks fall

* FTSEurofirst 300 closes 1.6 percent lower

* Euro zone banks fall

* Automakers feature among top decliners

By Brian Gorman

LONDON, Nov 29 (Reuters) - European shares hit their lowest close in nearly eight weeks on Monday, after an 85 billion euro ($112 billion) bailout deal for Ireland failed to allay concerns the euro zone debt crisis could spread to other countries.

The FTSEurofirst 300 <.FTEU3> index of top European shares fell 1.6 percent to 1,069.24 points, its lowest close since Oct. 5. The index is down 4.6 percent from a two-year peak it hit three weeks ago, when it was buoyed by investors' focus on quantitative easing and strong corporate earnings.

Heavyweight euro zone banks were among the biggest losers.

BNP Paribas , BBVA , Deutsche Bank and Societe Generale fell 3.0-4.7 percent.

"The market has lost faith completely with European and political leaders and is now actively looking for the next domino to fall," said Jeremy Batstone-Carr, strategist at Charles Stanley.

"We have had no real salvation over the course of the weekend."

Irish bank shares rose despite the prospect the state will own more of the top two lenders. Allied Irish Banks and Bank of Ireland rose 3.8 percent and 15.5 percent respectively.

Bank shares are effectively caught in the middle of a battle between governments and bond markets that is at the heart of the crisis, analysts said. [ID:nLDE6AS199]

Batstone Carr said companies, across all sectors, were likely to suffer derating. "Investors do not believe in the sustainability of the earnings and margins tend to mean revert...they will ascribe a low degree of confidence to the corporate sector."

The euro fell to two-month lows against the dollar .

The spreads between Italian and Spanish 10-year government bonds and their German equivalent widened to a euro-lifetime high. [ID:nWEA4872]

The cost of insuring Portuguese and Spanish debt against default rose to a record high after a tepid Italian auction result, while Portugal's economic climate indicator fell for the second straight month in November. [ID:nLDE6AS114]

TAKE A LOOK- Europe's debt problems [nLDE68T0MG]

Euro zone debt struggle http://link.reuters.com/dah65q

Euro zone debt graphic http://r.reuters.com/hyb65p

Interactive timeline http://link.reuters.com/nyx95q

Across Europe, Britain's FTSE 100 <.FTSE>, Germany's DAX <.GDAXI>, France's CAC 40 <.FCHI> fell 2.1-2.5 percent.

The Thomson Reuters Peripheral Eurozone Countries Index <.TRXFLDPIPU> fell 3.2 percent.

Spain's IBEX <.IBEX>, Portugal's PSI 20 <.PSI20>, Italy's FTSE MIB <.FTMIB> fell 2.2-2.7 percent. Ireland's ISEQ <.ISEQ> fell 0.4 percent.

OILS FALL

Energy shares were also among the casualties, though crude prices held up, topping $87, supported partly by cold temperatures across Europe.

Total , Royal Dutch Shell , Repsol and BG fell 1.7-3.2 percent.

BP fell 1.8 percent. The company has agreed to sell its stake in Argentina-based oil and gas group Pan American Energy to Bridas Corp for $7 billion. [ID:nLDE6AR059]

Automakers fell on worries that a slow economic recovery could hurt demand. Daimler AG , Porsche and Renault fell 3.2-4.1 percent.

Wall Street was lower around the time European bourses were closing. The Dow Jones <.DJI>, S&P 500 <.SPX> and Nasdaq Composite <.IXIC> were down 0.9-1.1 percent. Steelmaker Thyssenkrupp fell 3.7 percent, ahead of results on Tuesday.

Editing by Jane Merriman ($1 = 0.7606 euro)