* FTSEurofirst 300 down 0.5 pct, Euro STOXX 50 falls 0.9 pct
* Sentiment subdued on reports of Donetsk assault
* Auto stocks lead declines on emerging market weakness
By Francesco Canepa
LONDON, July 21 (Reuters) - European shares fell on Monday as fighting erupted in eastern Ukraine, the first major eruption of violence there since a Malaysian airliner was shot down last week.
Calls are multiplying in the West for new sanctions against Moscow over last week's downing of the Malaysia Airlines flight over eastern Ukraine, widely blamed on pro-Russian separatists. Russia challenged the accusations on Monday.
"The market is really worried about the enormity of the situation in Ukraine and, without even going into the sanctions, the rhetoric that escalates," Ashraf Laidi, chief global strategist at City Index, said.
"The market is going to be jittery ahead of the follow-up sanctions from the West as well as any reaction from Russia (and) may use it as an excuse for sell off."
The pan-European FTSEurofirst 300 closed 0.5 percent lower at 1,355.84 points. The euro zone Euro STOXX 50 fell 0.9 percent to 3,137.06 points.
The five-month conflict in Ukraine has added to concerns for European exporters already struggling with unfavourable currency fluctuations.
Peugeot's shares dropped 3.7 percent after it said deliveries fell 25.8 percent in Russia, 26.8 percent in Latin America and 37.2 percent in Africa and the Middle East.
Shares in Fiat and Renault each shed over 1 percent despite encouraging sales figures from Europe's peripheral markets, leaving the STOXX 600 auto and parts index down 1.1 percent.
Investors were positioning for some weak emerging-market figures when auto makers report quarterly numbers over the next few weeks.
"There are so many weak spots in the global (auto) markets, and the deterioration in Russia has contributed to the negative sentiment," Juergen Pieper, an auto analyst at Metzler Equities, said. "(The auto sector) needs quite a convincing quarter to change the trend."
While euro zone blue-chip companies get only 0.3 percent of their revenues from eastern Europe, Russia is a key provider of energy to many western European countries, notably Germany and Italy.
Jeremy Batstone-Carr, analyst at Charles Stanley, said that concerns over retaliatory moves by Russia, included the possibility that they might switch off gas taps to Europe, made European investors especially nervous.
Elsewhere, Israel showing no signs of scaling back its assault on Gaza, and the potential impact on tourism of instability in parts of eastern Europe and the Middle East hit the travel and leisure sector, which fell 1 percent.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up (Additional reporting by Alistair Smout. Editing by Jane Merriman)