Disappointing economic data sends European shares lower

* FTSEurofirst 300 down 1.2 pct, extends Monday's sell-off

* Raiffeisen Bank tumbles after warning on Ukraine, Hungary

* French and German PMIs rattle investors

* New U.S. tax rules hit European pharma stocks

By Atul Prakash

LONDON, Sept 23 (Reuters) - European shares fell for a second session on Tuesday, with investors rattled by data showing a contraction in French business activity and slower growth in German manufacturing this month.

Shares (Berlin: DI6.BE - news) in Austria's Raiffeisen Bank International (Xetra: A0D9SU - news) , down 8.8 percent, were the biggest faller in the FTSEurofirst 300 index, after the lender said it could lose as much as 500 million euros ($645 million) this year because of problems in Ukraine and Hungary.

France's CAC 40 share index underperformed after Markit (Stuttgart: A1139A - news) data showed business activity in the euro zone's second-biggest economy contracted this month due to a weaker-than-expected services sector.

The CAC index was down 1.7 percent at 1441 GMT, while the FTSEurofirst 300 index was 1.2 percent lower at 1,377.64 points, after falling to a one-week low. The pan-European index lost 0.6 percent on Monday.

"The French business activity data is indicative of the general state of Europe at the moment. It's a reminder that Europe is stagnant," Lorne Baring, managing director of B Capital Wealth Management, said.

"It's going to be problematic for all of Europe and especially for the banking sector. We are likely to see more poor data from other countries in Europe."

Data for Germany showed the private sector growing for the 17th consecutive month in September, but the manufacturing sector expanded at its slowest pace since June 2013, with the figure coming in below all forecasts in a Reuters poll of 32 economists.

For the euro zone as a whole, business activity grew less than expected in September, as firms cut prices for the 30th month in a row.

"For markets, the euro area remains stuck in a rut. Its recovery - especially in nominal GDP terms - is insufficiently strong to deliver a meaningful boost to corporate earnings and erode high debt to income ratios in the public and private sectors," Credit Suisse (NYSE: CS - news) said.

At the same time, however, the euro zone is probably not weak enough to force the European Central Bank to deliver a stimulus "bazooka" that would convince markets of its determination to deliver a vigorous recovery, Credit Suisse said in a note.

Among sectors, healthcare stocks fell sharply following new U.S. Treasury rules that will make it harder for companies to escape high U.S. taxes by reincorporating overseas.

Washington's move appears to jeopardize an agreed deal for AbbVie (Xetra: 4AB.DE - news) to buy Shire (LSE: SHP.L - news) for $55 billion and could deter Pfizer (NYSE: PFE - news) from making another attempt to acquire AstraZeneca (NYSE: AZN - news) , after a $118 billion takeover attempt failed in May.

AstraZeneca and Shire fell 4 percent and 2.3 percent respectively, while the STOXX Europe 600 Healthcare index dropped 1.2 percent.

Despite the two-day drop in European shares, Aurel BGC analyst Gerard Sagnier had a short-term 'buy' recommendation on European stock indexes.

"Markets are very technical at the moment. Indexes are bouncing back between resistance levels and support levels," Sagnier said. "But ultimately, the trend is still positive and indexes will manage to get back into green at some point, so people should take advantage of the dip."

On the positive side, Norway's Yara, the world's biggest nitrate fertiliser maker, rose 3.9 percent, the top gainer on the FTSEurofirst 300, after saying it is in talks with Chicago-based CF Industries about a merger that could create a $27 billion global fertilizer producer.

Europe bourses in 2014: http://link.reuters.com/pap87v

Asset performance in 2014: http://link.reuters.com/gap87v

Today's European research round-up (Additional reporting by Blaise Robinson in Paris; Editing by Susan Fenton)