* FTSEurofirst 300 falls 0.8 pct, down 2.1 pct in 2 days
* VDAX-NEW volatility index surges as risk aversion rises
* Shares of airlines sink on fears over travel, fuel costs
* Trading on Milan bourse suspended due to technical issues
* For up-to-the-minute market news, click on []
By Blaise Robinson
PARIS, Feb 22 (Reuters) - European stocks fell in early
trade on Tuesday, adding to the previous session's retreat as
mounting violence in oil-rich Libya prompted investors to cash
in recent lofty gains and turn to safer bets such as Bunds.
At 0949 GMT, the FTSEurofirst 300 <> index of top
European shares was down 0.8 percent at 1,161.87 points, after
losing 1.3 percent on Monday.
The index, which hit a 29-month high on Friday, had gained
nearly 6 percent since the beginning of 2011.
"We've had a pretty sharp rally so far this year, and the
rising tensions in the Arab world has been used as an excuse to
book some profits," said Jacques Henry, analyst at Louis Capital
Markets in Paris.
"It's healthy for the market to take a breather after such
strong gains, and as soon as the Libyan crisis eases, stocks
should resume their rally."
Shares in airlines were among the biggest losers, hurt by
fears over fuel costs as oil prices surged, as well as by
concerns that the crises in the Arab world will hit travel.
Air France-KLM <AIRF.PA> was down 3.3 percent, Lufthansa
<LHAG.DE> down 2.4 percent, and IAG <ICAG.MC>, formed from the
merger of British Airways and Iberia, down 3 percent.
"Enthusiastic investors had forgotten about risks in
emerging and frontier markets. This is a wake-up call," a
Paris-based trader said.
"There was almost no impact from the turmoil in Tunisia, but
now it's a different game with Libya. The stakes are much
bigger, and the risks for a number of companies such as ENI are
huge. We just don't know where it's going to end."
Despite surging oil prices, energy shares took a beating on
Tuesday on fears over their exposure to the troubled region. BP
<BP.L> fell 0.9 percent, Total <TOTF.PA> was down 1 percent and
Repsol <REP.MC> down 1.7 percent.
Shares of Royal Dutch Shell <RDSa.L>, which said on Tuesday
all its expatriate employees and their relatives in Libya had
been relocated, was down 0.9 percent.
Trading on the Milan bourse was suspended on Tuesday for
technical reasons, a day after the benchmark FTSE MIB index
<.FTMIB> sank 3.6 percent on worries over Italian companies'
exposure to Libya.
Around Europe, the UK's FTSE 100 index <> was down 1.1
percent, Germany's DAX index <> down 0.6 percent, and
France's CAC 40 <> down 1.4 percent.
The VDAX-NEW volatility index <.V1XI>, a barometer of
investor anxiety, gained 8 percent on Tuesday, hitting a
six-week high as investors' risk appetite sharply dropped.
(Reporting by Blaise Robinson; Editing by Will Waterman)
