* Pan-European FTSEurofirst 300 down 0.9 percent
* Actelion drops after initiating discussions with ZS Pharma
* E.ON falls on broker downgrades after drops nuclear spin-off
By Alistair Smout and Atul Prakash
LONDON, Sept 11 (Reuters) - European shares fell for a second straight day on Friday, led lower by Swiss drugmaker Actelion after news it had initiated preliminary discussions with ZS Pharma, although a major share index headed for its biggest weekly rise since July.
Actelion shares slid 3.7 percent, the top decliner in the FTSEurofirst 300 index of top European shares, after both companies confirmed they had preliminary discussions, although not specifically mentioning if the talks were related to a buyout.
Analysts at HSBC said that there was a risk that the bid by Actelion would destroy value for its shareholders. Bloomberg had reported earlier in the day that Actelion had offered to buy ZS Pharma last month in a deal valued at $2.5 billion.
The FTSEurofirst 300 index was down 0.9 percent at 1,402.02 points by 1102 GMT. But the index is up nearly 1 percent so far this week and is set for its biggest weekly rise in 2 months.
Equities had been under pressure in recent weeks, with concerns about China's growth roiling markets. However, markets have stabilised since Chinese regulators intervened in its stock market, with some investors also betting the recent uncertainty would dissuade the U.S. Federal Reserve from raising rates next week.
"If the Fed doesn't raise rates this month, we might see a bounce. But investors will start thinking that a hike is coming in October. This overhang is not good for the markets," Manish Singh, head of investment services at Crossbridge Capital, said.
After a rally in the past two weeks, some were cautious heading into the new week, even if many investors believed the August sell-off had been overdone.
"We're going through quite a fragile time, and we'll have to see how it evolves from here. That will depend on Fed action, as well as whether there's further negative news from China," said Veronika Pechlaner, European equity fund manager at Asburton.
"We've had a bounce, and after a correction as steep as the one we've had, the rally needs testing ... This is not the time to make huge bets either way, but longer term we remain constructive on equities."
Shares in Germany's biggest utility E.ON fell 2.4 percent, extending the previous session's fall following some broker downgrades.
Its shares dropped 5 percent to a 20-year low on Thursday after the company abandoned plans to spin off its German nuclear power plants, bowing to political pressure to retain liability for billions of euros of decommissioning costs when they are shut down.
"We see this as a clear negative to our previously positive investment case ... it appears the politicians have got the better of E.ON," analysts at RBC said in a note, downgrading the stock to "sector perform" from "outperform".
"In our view, the previously promised new E.ON, which was meant to be a highly regulated and network & customer focused, will be little improved on the current business and will not be the company that many investors were hoping for."
Europe bourses in 2015: link.reuters.com/pap87v
Asset performance in 2015: link.reuters.com/gap87v
Today's European research round-up (Editing by Mark Heinrich)