* Germany's DAX index 20 pct below 2015 record high
* China worries intensify, miners and car stocks hit hard
* China accelerates devaluation of yuan
* Volatility index surges to mid-Dec levels (Adds details, updates prices)
By Sudip Kar-Gupta
LONDON, Jan 7 (Reuters) - European shares fell sharply on Thursday after China accelerated the depreciation of the yuan, sending currencies across the region reeling and domestic stock markets tumbling.
The pan-European FTSEurofirst 300 index and the euro zone's blue-chip Euro STOXX index both fell around 3.3 percent by 1125 GMT.
Germany's DAX dropped 3.6 percent, while Britain's FTSE 100 weakened by 2.7 percent.
The DAX and FTSEurofirst were both at their lowest level since early October, with the DAX some 20 percent below a record high reached in April 2015.
"It's looking pretty ugly. We've been scaling down equity positions. It's time to take a step back to re-evaluate the situation," said Andreas Clenow, hedge fund manager and chief investment officer at ACIES Asset Management.
The sell-off sparked a surge in the Euro Stoxx 50 volatility index which rose more than 4 points to its highest level since mid-December.
The People's Bank of China (PBOC) again surprised markets by setting the official mid-point rate on the yuan, also known as the renminbi (RMB), at 6.5646 per dollar, the lowest since March 2011.
Stock markets in China, which is the world's second-biggest economy, were suspended for the rest of the day less than half an hour after opening as a new circuit-breaking mechanism was tripped for the second time this week.
Investors have expressed fears that the yuan's rapid depreciation could mean China's economy is even weaker than had been imagined.
The worries over China hit mining stocks particularly hard, since China is the leading global consumer of metals, with Anglo American slumping 10 percent while Glencore fell 5.3 percent.
Companies that export to China, such as carmakers, also fell sharply, with BMW down 4.7 percent, while financial stocks with exposure to emerging markets in China were also under pressure, with Standard Chartered and Aberdeen Asset Management down 2.9 and 6.6 percent respectively.
"The extent of the slowdown in China is certainly a worry. Investor sentiment is very fragile at the moment," said Terry Torrison, managing director at Monaco-based McLaren Securities.
Pandora stood out as a gainer to rise 3.4 percent after the Danish jewelry maker and retailer reported a 40 percent rise in 2015 revenues and outlined stores opening for the coming years.
Today's European research round-up (Additional reporting by Danilo Masoni; Editing by Toby Chopra)