GUILDFORD (Reuters) - Britain confirmed a second outbreak of foot and mouth disease in a herd of cattle in southern England on Tuesday, raising fears the highly damaging animal disease may spread.

The owner of the first farm where the disease broke out said he was "completely shocked and devastated" by the outbreak which forced the slaughter of his entire herd.

Lending weight to one theory of how the virus spread, farmer Roger Pride said a sewer in a field where his cattle were grazing had overflowed.

Animals from both sites have been culled and 3 km exclusion zones and 10 km protection zones set up around the farms and the site of two research laboratories which have handled the virus.

"We've got to keep on top of this outbreak and make sure it doesn't spread anywhere else," Environment Secretary Hilary Benn told BBC television. He urged all farmers to be highly vigilant and check animals regularly for any sign of illness.

The outbreak poses an immediate threat to Britain's livestock industry, whose meat exports are worth more than $1 billion a year.

The agriculture ministry denied reports that a third suspected case had been found near the first confirmed site.

Foot and mouth disease, which affects cloven-hoofed animals and can be carried on the wind, was confirmed in a small herd of cattle in Surrey, southeast England, on Friday.

It was the first outbreak of the disease in Britain since 2001, when the illness devastated the farming community.

More than six million animals were burnt on vast funeral pyres and the crisis cost agriculture and the rural tourism industry around 8.5 billion pounds ($17 billion).

BADLY WRONG

Pride, the first farmer affected, described how he had noticed his animals were ill late last week. "Some of them were off-color and drooling," he told reporters. "It was immediately obvious that something was badly wrong."

When the illness was confirmed as foot and mouth, "it felt as if our whole world had been turned upside down," he said.

Another local farmer said the community's worst fears had been reawakened. "Farmers ... are very, very scared and all activity on farms is coming to a complete standstill," he told BBC radio.

The European Union banned all British exports of fresh meat, live animals and milk products last Friday when the disease was first confirmed.

It is still not clear how the outbreak began, but investigators are focusing on two animal research laboratories -- one run by the government, the other private -- sited about 8 km (5 miles) from where the disease first erupted.

They are also considering whether recent floods may have contributed to the transmission of the virus.

Pride said a sewer had overflowed into part of the field where some of his cattle were grazing, adding this was an "obvious possibility" as a cause. An initial report from investigators is expected to be made public later on Tuesday.

Anthony Gibson, a spokesman for the National Farmers Union in Surrey, warned farmers to be on alert. "There is still disease out there and it's vitally important we root it out before it has the chance to spread," he told a news conference.

To try to limit the spread of the disease, the government has banned the movement of farm animals nationwide -- a ban that may last weeks and have a deep economic impact on farming.

Economist Mark Miller from the HBOS bank said swift action would limit the damage but voiced concern the outbreak could have a negative impact on British economic output.

The research laboratories are the government-run Institute for Animal Health and a facility operated by Merial Animal Health Ltd, jointly owned by U.S. drugmaker Merck & Co. Inc and France's Sanofi-Aventis SA.

(Additional reporting by Kate Kelland and Matt Falloon)