(Adds state of calamity)

By Pedro Uchi

DARAGA, Philippines, Dec 3 (Reuters) - Villagers in the central Philippines buried hundreds of relatives and friends in mass graves on Sunday as hopes faded of finding survivors from Typhoon Durian.

Officials fear the death toll from Durian, which swept into the South China Sea on Friday, could hit 600 after driving rain and winds of up to 225 kph (140 mph) sent waves of mud crashing down an active volcano onto nearby villages.

President Gloria Macapagal Arroyo declared a state of national calamity on Sunday, allowing her to order the release of 1 billion pesos ($20 million) in government funds for relief and rehabilitation of affected areas.

Soldiers, miners and locals, some using their bare hands, pulled corpses and body parts from areas surrounding Mount Mayon, about 320 km (200 miles) south of Manila. There was little chance of finding anyone alive under the fetid sludge.

"We owe it to the people to recover their relatives but, at some point in time, we could have to declare closure," said Senator Richard Gordon, head of the local Red Cross.

The National Disaster Coordinating Council said 309 people had been killed by landslides, flooding and flying debris, with 298 still missing across the central Bicol region.

In Albay province, where residents had already suffered a slew of typhoons and the threat of a volcanic eruption this year, rumours of an impending tsunami sparked chaos with thousands fleeing coastal areas on buses, cars and motorbikes.

"It was probably some prankster and it caused tremendous panic. It spread like wildfire, even with the communications blackout," Governor Fernando Gonzales told Reuters.

Durian, one notch below a category 5 "super typhoon" when it hit the Philippines, weakened to a category 1 typhoon over the South China Sea and was expected to hit Vietnam's coast on Monday, potentially disrupting the coffee harvest.

APPEAL FOR HELP

In the Philippines, more than 800,000 people were affected by Durian, which set off flooding so severe that some people, clinging to coconut trees in vain, were washed out to sea.

Thousands were still without food, electricity and fresh water on Sunday after nearly 120,000 homes were damaged, communication lines uprooted and crops destroyed.

"We are only starting to receive food now. Yesterday it was almost impossible to deliver any food because of the conditions of the roads," said Gonzales.

Distraught survivors, many clutching handkerchiefs to suppress the stench of rotting bodies, clambered through the rubble of their homes to try to find loved ones.

"We do not know if they are still alive or gone. We appeal for help. Anybody please help us. We want to see our missing brother and nieces," Merla Marigondon said.

Named after a pungent Asian fruit, Durian was the fourth typhoon to hit the Philippines in three months. Forecasters expect one more before the end of the year.

(Additional reporting by Fred Lee and Cheryl Ravelo in Daraga)

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