* FTSEurofirst falls 2.7 pct on recession worries
* Price-earnings ratio on Stoxx 600 falls to 8.7
* Autonomy soars 75 pct on HP takeover
By Brian Gorman
LONDON, Aug 19 (Reuters) - European shares approached two-year lows on Friday, extending the previous session's plunge, on fears that major economies are heading for recession and that policymakers have no answer to the euro zone debt crisis.
At 0815 GMT, the FTSEurofirst 300 index of top European shares was down 2.7 percent at 899.86 points, having gone as low as 890.74, just above the two-year low of 888.11 hit on Aug. 9.
The decline follows a 4.8 percent tumble on Thursday, its biggest one-day fall since March 2009, on a raft of gloomy U.S. economic data and concerns over short-term funding stress on European banks.
The index has lost more than 16 percent in August.
Stocks fell across the board, and the banking sector, exposed to the euro zone debt crisis, was among the hardest hit. The STOXX Europe 600 Banking Index was down 3 percent. It is down more than 31 percent in 2011.
Barclays and Lloyds fell 6.2 and 8.8
percent, while Deutsche Bank
Some European banks are being forced to pay more for access to short-term U.S. dollar loans as fresh fears surface over the euro-zone fiscal crisis spreading through the financial sector.
"Concerns about double dip have increased enormously after the U.S. Philly Fed yesterday," said Daniel McCormack, equity strategist at Macquarie.
"Equity markets are starting to look decidedly cheap on cosmetic multiples. We're looking at rock-bottom valuations. But markets can still go down, as earnings estimates get cut and the PE stays the same. There are significant earnings cuts to come."
Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a one-year forward price-to-earnings of 8.7, against a 10-year average of more than 13.
Energy companies fell, as crude prices slipped on a weaker demand outlook. BP and Total fell 2.9 and 2.7 percent.
"The market is discounting a recession, but I would say they're wrong," said Lothar Mentel, chief investment officer at Octopus Investments, which manages $4 billion.
"Some stocks have been driven down to ridiculous levels."
On banks, however, he sounded a note of caution.
"European governments are guaranteeing European banks, but if the governments are not stable themselves, that means the banks aren't stable."
Across Europe, Britain's FTSE 100 was down 2 percent; Germany's DAX fell 3.4 percent and France's CAC40 fell 2.7 percent.
Spain's IBEX fell 3 percent. Spain will announce further austerity measures on Friday aimed at fending off debt market attacks.
Earlier this week, new Franco-German proposals to boost fiscal convergence in the euro zone failed to convince investors the bloc's debt crisis was closer to being solved.
SAFE HAVEN
Gold hit a record high above $1,860 an ounce, as investors put their cash into the safe haven asset on concerns about the economic outlook.
But mining stocks fell, with copper prices having fallen 2 percent on Thursday.
The Stoxx Europe 600 Basic Resources Index fell 3.5 percent.
Autonomy Corp , however, soared 75 percent, after Hewlett-Packard Co said it would buy the British software company for as much as $11.7 billion.
Other tech stocks to rise included ARM Holdings , up 2 percent, and Software , up 3.6 percent. (Editing by Will Waterman)
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