European shares dip as trade worries grow, banks shine

By Danilo Masoni and Julien Ponthus

MILAN (Reuters) - European shares abandoned early gains and closed in negative territory on Tuesday, as investors grew increasingly worried that the United States would slap new tariffs on Chinese imports and get the trade war in full swing.

The pan-European STOXX 600 index (.STOXX) ended the day down 0.75 percent after touching a two-month low during midday trading.

"Trade concerns continue to weigh on markets", said David Madden, an analyst at CMC Markets, as Washington could decide this week to tax an extra $200 billion (156 billion pounds) of Chinese imports.

The worst performance was posted by British advertising group WPP, down 6.3 percent after the company said profitability would decline this year.

"WPP is weak because there is a margin outlook cut for 2018 and the message is that turning around this behemoth is going to take time and be costly," said Neil Campling, Co-Head Global Thematic Group at Mirabaud Securities.

"There was also some hope that we might see quick progress on asset sales or merging of units but the message from the new CEO is not to expect wholesale changes," he added.

Telecom Italia (TLIT.MI) fell 5.4 percent after Exane BNP Paribas downgraded the stock to underperform from neutral, saying the market underestimated the threat from fibre competition.

In France, telecoms operator Iliad (ILD.PA) cut its mid-term profitability targets after suffering in the first half its first loss of mobile subscribers since the launch of its mobile business in 2012. However, its shares, which have already fallen more than 40 percent this year, rose 6.6 percent.

It was a good session for banks, with the sector's index (.SX7P) rising 0.7 percent, supported by strength among Italian lenders following soothing comments from Italian ministers on forthcoming budget proposals.

Among Italian banks, which are seen as a proxy for political risk due to their large sovereign debt holdings, UBI Banca (UBI.MI) led the way, up 4.7 percent, while Unicredit (CRDI.MI) added 4.1 percent and BPER Banca (EMII.MI) rose 3.7 percent.

"We guess the ruling coalition doesn't want to (commit) suicide by presenting 2019 deficit targets near 3 percent compared to the 0.8 percent planned. We guess they will present something acceptable and incorporated in BTP and stock market prices," said Fidentiis in a note to clients.

Optimism on the political situation in the Spanish region of Catalonia also triggered positive moves in the country's banking sector.

CaixaBank (CABK.MC), Bankinter (BKT.MC), Bankia (BKIA.MC) and Sabadel (SABE.MC) were the top shares in Madrid, up 4 percent, 2.2 percent, 1.5 percent and 1.4 percent respectively.

Danske Bank's (DANSKE.CO) woes weighed on its shares, which were down more than 6.2 percent following a report suggesting its Estonian branch handled $30 billion of non-residents' money in 2013.

ING Groep (INGA.AS) also fell, down 1.2 percent, after news the Dutch bank will pay 775 million euros in a settlement with prosecutors, who accused it of having financial controls so poor that customers were able to easily launder money.

Elsewhere, Scor (SCOR.PA) rose 9.5 percent after the French re-insurer rejected a friendly takeover offer by Covea.

(Reporting by Danilo Masoni and Julien Ponthus; Editing by Andrew Heavens and Kirsten Donovan)