* Pan-European index down 0.6 pct
* UK defence stocks rise on budget spending plans
* Commodities, energy plays main fallers on demand worries
* Italian lenders up after launch of rescue fund (Adds details, updates prices)
By Danilo Masoni
MILAN, Nov 23 (Reuters) - European shares fell on Monday, as demand concerns weighed on commodities and energy stocks, but British defence plays such as Rolls Royce rose on plans to boost budget spending.
The pan-European FTSEurofirst 300 was down 0.6 percent, but came off initial lows thanks to stronger than expected business surveys, while the Euro STOXX 50 index was 0.5 percent lower.
Rolls Royce and BAE Systems rose 2.2 and 1.3 percent respectively after Britain's finance minister George Osborne said it planned to buy more fighter jets and boost its anti-terrorism spending by 30 percent.
"There is every likelihood that the defence sector is going to get a larger piece of financing than expected earlier," IG analyst Alastair McCaig said.
Mining stocks fell 1.3 percent after metal prices dropped to multi-year lows on worries about Chinese demand. The energy sector slid furthest, down 1.5 percent, hit by a drop in crude prices.
Italian lenders were among the top gainers in Europe, boosted by the launch of a new system to undertake a 3.6 billion euro ($3.8 billion) rescue of four small savings banks before stricter rules take effect next year.
Although the cost of the rescue will be borne by Italy's healthy banks, a trader saw it as a positive resolution for the sector in the medium term. UniCredit rose 2.4 percent, Intesa Sanpaolo added 0.9 percent, while Monte dei Paschi rose 2.2 percent.
German ATM machine maker Wincor Nixdorf rose more than 5 percent after U.S. rival Diebold Inc launched a $1.8 billion cash and share offer.
Kepler Cheuvreux said in a note the industry environment remains challenging and the bid was "a good opportunity for Wincor shareholders to exit." The broker estimates 100-150 million euros of potential synergies for Wincor.
Belgian shares fell 0.2 percent, broadly in line with the overall weaker market trend, as investors played down concerns of a Paris-style mass attack.
Europe bourses in 2015: link.reuters.com/pap87v
Asset performance in 2015: link.reuters.com/gap87v
Today's European research round-up RCH/EUROPE ($1 = 0.9414 euros) (Additional reporting by Atul Prakash in London; Editing by Ruth Pitchford)