* FTSEurofirst 300 down 0.4 percent after 5-week lows
* Moody's downgrade of Spain hurts market sentiment
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By Atul Prakash
LONDON, March 10 (Reuters) - European shares hit a five-week low on Thursday as worries about the health of peripheral euro zone economies grew after Moody's downgraded Spain's rating, while miners were hit hard on surprisingly weak Chinese data.
Investor appetite for risky assets such as equities fell, with the VDAX-NEW volatility index touching a three-month high before paring gains. The higher the index, which is based on sell and buy options on Frankfurt's top-30 stocks, the lower the market's desire to take risk.
At 0946 GMT, the FTSEurofirst 300 index of top European shares was down 0.4 percent at 1,139.98 points after touching 1,133.55 -- the lowest since late January.
Spain's benchmark stock index IBEX, down 0.9 percent, underperformed the wider market. Italy's FTSE MIB was down 0.7 percent, Ireland's ISEQ fell 0.3 percent and the Thomson Reuters Peripheral Eurozone Countries Index dropped 1.2 percent.
"The troubles in the peripheral economies have resurfaced and it's certainly going to hurt sentiment. If they are forced to come up with more austerity measures, that will hurt their economies further," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.
Moody's cut Spain's sovereign credit rating by a notch and warned of further cuts, saying the country's plans to clean up the battered banking sector will cost more than the government expects and will add to its debt burden.
Banks were on the back foot, with the European sector index falling 0.7 percent. Allied Irish Banks was down 6 percent, while Spanish banks Banco Santander and BBVA fell 1.8 percent and 1.4 percent respectively.
"When these things actually happen, then it has some further negative effect but the bulk of the negative impact is understood and priced in," said Richard Greenwood, fund manager at Bedlam Asset Management, referring to Spain's downgrade. The cost of insuring Spanish debt against default rose on Thursday, while data showed German exports unexpectedly fell 1 percent in January.
MINERS SLIP
Miners were among the top decliners as weak Chinese import data cast doubt on demand for raw materials. Figures showed China swung to a surprise trade deficit in February of $7.3 billion, its largest in seven years.
The STOXX Europe 600 Basic Materials index fell 2 percent, while BHP Billiton dropped 2.7 percent.
However, Greenwood of Bedlam, which manages $700 million, said the market presented opportunities for stock pickers as equities offered valuation opportunities.
"There is no reason to believe that equities are overvalued, whereas some other asset classes like sovereign debt markets look hideously overvalued."
Europe's STOXX 600 index currently trades at 10.8 times expected earnings, below a 10-year average of 13.6, according to Thomson Reuters Datastream. This compares with a price-to-earnings ratio of 13.1 for U.S. S&P 500 index.
Greenwood said the market was witnessing a rotation into developed markets from emerging markets.
"A lot of developed market stocks have big emerging market businesses, which we are picking up at better valuations at the moment. Oil as a long-term structural investment idea has a lot of merit, but you have got to get it at the right price and we may have missed that at the moment."
Delhaize rose more than 4 percent to an eight-month high after the Belgian supermarket group beat market expectations for profit in the fourth quarter. Investors will keep an eye on the Bank of England's interest rate decision, with analysts expecting rates to stay at a record low of 0.5 percent. (Editing by Hans Peters)