* Euro zone stocks fall 0.8 pct
* Italian stocks, led by banks, slide on budget tensions
* Bouygues and Michelin tumble on outlook cuts
* Autos sector falls 2.7 pct (Updates prices, adds details, quotes, graphic)
LONDON, Oct 19 (Reuters) - European stocks tumbled again on Friday as a showdown between Italy's populist government and the European Union heated up and weak results from Michelin and Bouygues reignited investors' concerns about auto and construction stocks.
Euro zone stocks fell 0.8 percent while the pan-European STOXX 600 was down 0.4 percent and Italy's top stock index slid 1.2 percent.
Brussels sent Rome a letter demanding an explanation for its budget plans, calling them an "unprecedented" breach of EU fiscal rules.
Italy's bank stocks index fell 2.9 percent to a 22-month low as government bonds were sold off. It was set for its fourth straight week of declines.
A crop of results, some with negative outlooks, suggested growth slowing in China, car demand falling, and issues in the construction sector.
"Companies that disappoint are always more harshly punished but, given the trend in the market currently, reactions are stronger than usual," said Emmanuel Cau, European equity strategist at Barclays.
Shares in tire maker Michelin tumbled 6.7 percent after it cut its sales outlook and downgraded its market growth forecasts, blaming slowing Chinese car demand and new emissions testing regulations.
Its German rival Continental fell 3 percent to the bottom of the DAX, and the autos and parts sector as a whole sank 2.9 percent.
"This warning provides a negative read across to all tire makers (weaker market volume and higher input costs)," said UBS analysts.
French conglomerate Bouygues fell 6.5 percent after cutting its profit outlook due to difficulties in its construction businesses, also reporting a shrinking margin due to problems with contracts and France's rail strikes.
"This was particularly surprising two weeks after a bullish construction capital markets day," wrote Credit Suisse analysts.
British construction equipment rental firm Ashtead fell 4.5 percent in sympathy.
Swedish builder Skanska fell 9 percent after saying it had booked charges of 1.3 billion crowns ($140 million) in the third quarter relating to construction projects in the United States.
Overall, the construction and materials sector fell 0.3 percent, its second day of declines after being hit on Thursday by a profit warning from Heidelbergcement.
"We have a negative view on this sector - it's very sensitive to emerging markets and China, and we're quite cautious on those areas," said Barclays' Cau. "Construction is penalized both by a slowing economy and by rising raw materials costs."
Sopra Steria was the top STOXX 600 faller, dropping 26 percent after cutting its 2018 revenue forecast due to a contract loss in banking software.
"The profit warning will probably trigger around 15 percent EPS downgrades and obviously a bit of an additional hit from a share price perspective because of derating as well," said Georgios Kertsos, an analyst at Berenberg.
"It's probably a bit too harsh a hit," he added, saying more detail was needed from the company, which is in a quiet period before its third-quarter results on Oct. 25.
Overall, analysts have been downgrading their forecasts for European earnings quite sharply in recent weeks, but Barclays' Cau said he thought estimates for 2019 earnings growth were still too high and could decline further.
(Reporting by Helen Reid; Editing by Kevin Liffey)