European shares pulled down by disappointing economic data

* FTSEurofirst 300 index closes 1.2 percent lower

* Raiffeisen Bank tumbles after warning on Ukraine, Hungary

* French and German PMIs rattle investors

* New U.S. tax rules hit pharma stocks

By Atul Prakash

LONDON, Sept 23 (Reuters) - European shares fell for a second day on Tuesday, after data showed a contraction in French business activity and slower growth in German manufacturing this month.

Austria's Raiffeisen Bank International (Xetra: A0D9SU - news) , down 10 percent, led the declines on the FTSEurofirst 300 index . The bank said it might 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 shrank this month as services weakened more than expected.

The CAC fell 1.9 percent and the FTSEurofirst 300 index closed down 1.3 percent weaker at 1,374.85 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," said Lorne Baring, managing director of B Capital Wealth Management. "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 grew for the 17th straight month in September, but manufacturing expanded at its slowest since June 2013. For the euro zone overall, business activity grew less than expected in September, as companies 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.

But the euro zone is probably not weak enough to force the European Central Bank to use a stimulus "bazooka" that would convince markets of its determination to deliver a vigorous recovery, it 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 3.6 percent and 2.5 percent respectively, while the STOXX Europe 600 Healthcare index dropped 1.3 percent.

Supermarket retailers fell after data from Kantar Worldpanel showed Britain's grocery market grew at its slowest rate for more than 20 years over the last 12 weeks.

Tesco (Xetra: 852647 - news) fell 4.2 percent to its lowest in more than a decade, after a drop in the previous session when the world's No. 3 retailer cut its profit forecast for the third time in two months. Sainsbury's was down 5.4 percent.

On the positive side, Norway's Yara, the world's biggest nitrate fertiliser maker, rose 3.9 percent, making it the top gainer on the FTSEurofirst 300. Yara said 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, Larry King)