* FTSEurofirst 300 falls 0.5 pct, down from 10-month high
* Euro zone consumer prices fall less than forecast
* Chinese stocks slump 6.7 pct; second worst month in 15 yrs
By Dominic Lau
LONDON, Aug 31 (Reuters) - European shares edged down by midday on Monday, led by financials and automakers after a tumble in Chinese stocks hurt sentiment as China's economy has been one of bright sparks for the global recovery.
By 1022 GMT, the FTSEurofirst 300 index of top European shares was down 0.5 percent at 973.06 points, after reaching a 10-month high on Friday. The London market was closed for a holiday and will resume trading on Tuesday. Financials fell, with Commerzbank, BNP Paribas, Natixis, Credit Suisse, Societe Generale, KBC, Aegon and Deutsche Bank down 1.2-5.8 percent.
Oil prices dropped more than 2 percent to just above $71 a barrel as a fall in China's key stock index stoked worries about the country's economy. Royal Dutch Shell, Total and StatoilHydro lost 0.7-1.3 percent.
Steelmaker ArcelorMittal eased 1.9 percent.
Chinese stocks sank 6.7 percent to a three-month closing low and recorded their second-biggest monthly loss in 15 years. Chinese share trading is largely cut off from global markets but the big drop in Shanghai still had a psychological knock-on.
"The worry is that (China) will stop putting money into the system. That will hurt China," said Philippe Gijsels, senior equity strategist at Fortis Bank, in Brussels. "Of course, that has a very important impact on the world economy, or the sentiment at least."
The slide in Chinese shares, as well as a decisive result for the opposition in Japanese elections, boosted the yen, which hit a seven-week high against the dollar.
Meanwhile, euro zone consumer prices fell for the third month running year-on-year in August, data showed, but by less than the record drop in July and economists expect them to start growing again in coming months.
The pan-European FTSEurofirst 300 index has rallied 51 percent since hitting a floor in early March, and is up nearly 17 percent so far this year on hopes of a 'V'-shaped economic recovery.
However, Gijsels said the bounce was just a bear market rally, buoyed by governments' liquidity injections and consumer demand in the United States and Europe would remain weak.
"I do not see a strong pick-up in employment because quite a few layoffs are still in the pipeline. If you look at the previous troughs, the labour market only picked up six to nine months after the economy picked up," he said.
CARMAKERS FALL
Automakers were also weaker in Europe, down 1.3 percent, and Porsche lost 2.1 percent.
About 370,000 employees of Volkswagen and Porsche plan to take a stake of up to 5 percent in the automotive group, VW's labour chief Bernd Osterloh told German newspaper Sueddeutsche Zeitung in an interview.
Among other individual movers in Europe, Deutsche Post fell 2.7 percent, after Juergen Gerdes, the head of the company's mail unit, said the unit needed to cut costs to avoid posting losses over the long run.
German Bayer dropped 0.8 percent. On Sunday, unlisted competitor Boehringer Ingelheim released positive results about one of its drugs which rivals Bayer's Xarelto.
France's Vivendia rose 1.5 percent, buoyed by an upgrade to 'buy' from 'add' from Oddo.
Austrian Strabag advanced 0.9 percent after the builder reported second-quarter results that beat expectations, and confirmed its 2009 forecast.
Across Europe, Germany's DAX was down 0.8 percent, while France's CAC 40 slipped 0.7 percent. (Additional reporting by Christoph Steitz; Editing by Dan Lalor)