* FTSEurofirst down 1.1 percent
* BHP Billiton raises concerns over China demand
* Automakers fall on Russia, China growth worries
* Telecoms rise as Citigroup ups rating
By David Brett
LONDON, March 20 (Reuters) - Financials and commodity-linked stocks were among the top fallers as European shares retreated from eight-month highs on Tuesday, after waning growth in China and mixed U.S. data cast a shadow over the earnings outlook for Europe's biggest companies.
The pan-European FTSEurofirst 300 index of top shares was down 1.1 percent at 1,093.45 points, having last week hit its highest level since July.
A technical analyst said the index should find support at 1,090 -- its February highs -- but if a convincing break down through that level could see the index dip to about 1,080, which represents a level near its 20-day moving average.
The FTSEurofirst fell away from near-overbought levels, according to its 14-day relative strength, but strategists do not see European indexes heading for a more marked correction.
Andrew King, head of European equities at BNP Paribas Investment Partners, said although equities are not as cheap as they have been - 12-month forward price earnings (P/E) ratios on the FTSE 100 and Germany's DAX jumped from around 8.5 times to about 10.5 times in the last six months - he expected shares to be supported on valuation grounds.
"Generally when we look across the asset-class spectrum equities still look to us to be the most attractively priced major investment class," King said.
For the time being, commodity-linked stocks such as miners and integrated oils were down in tandem with commodity prices on concerns of slowing demand from China, the world's most voracious consumer of commodities.
BHP Billiton, down 4.1 percent, raised concerns about a slowdown in China when it said it was seeing evidence of "flattening" iron ore demand.
China recently cut its GDP forecasts for this year.
Traders cited the prospect of falling demand in Russia and a media report that Chinese car sales would miss growth forecasts as weighing on the auto sector, which has come under pressure from analysts downgrades in recent days.
Daimler and BMW were the standout losers in the sector, down 4.4 percent and 5.0 percent respectively.
"Whether it's earnings upgrades or a restarting of M&A activity in ernest, it seems like there's part of the equation missing if we're hoping to make a significant leap higher (in equities) soon," Mike McCudden, head of derivatives at Interactive Investor, said.
A lackluster start on Wall St, where indexes remain at near four-year highs, compounded falls in Europe.
Mixed U.S. housing data did little to improve appetite for equity markets, which have been boosted by the prospect of a stronger-than-expected economic recovery by the world's largest economy.
Despite the improvements shown in the United Sates and hopes Europe can avoid a full blown recession, corporate earnings continue to suffer downward revisions.
Banks and insurers, which have ridden the wave of liquidity created by central bank stimulus measures, fell too, while brokers turned more cautious on the sectors given the gains of around 20 percent they have achieved in 2012.
Banco Santander aand BBVA each shed around 1.0 percent as Berenberg Bank intiated coverage on the Spanish banks with a "sell" rating.
"Spanish and European policymakers are being supportive with generous liquidity offers, but there is no guarantee that this support will always be there as needed," Berenberg said.
Nomura said investors should be aware that large global investment banks may face risks from credit ratings downgrades by Moody's, that followed a downbeat note on the sector's earnings prospects by Barclays Capital on Monday.
On European insurers, Goldman Sachs said despite the sector's outperformance year-to-date there are still some opportunities for investors in the midcap area. But it downgraded Swiss Life, 0.8 percent lower, to "sell" from "neutral" on valuation grounds.
Reflecting a turn in sentiment away from riskier assets, the defensively perceived telecoms sector outperformed as Citigroup raised its recommendation to "neutral" from "underweight" in a European equity strategy note.
"Along with other defensive sectors, telecoms has been a poor performer over the past few months ... The sector now looks very cheap, especially on a dividend basis. It has a trailing dividend yield of 8 percent and yields more than twice the market on a 2012 basis," Citigroup's Simon Weeden, head of European telecoms research, said.
London-listed mobile telecoms firm Vodafone was a top riser, up 2.1 percent, buoyed by sector rotation out of cyclical stocks and as Morgan Stanley suggested it was a good time to buy into the stock on valuation grounds, traders said.