* STOXX 600 down 0.3 pct
* London's FTSE lags on strong sterling
* Air France KLM downed by Dutch govt stake news
* Beiersdorf sinks after warning on margins (Updates prices, adds details)
By Josephine Mason
LONDON, Feb 27 (Reuters) - European shares fell in early deals on Wednesday, snapping a three-day winning streak amid growing India-Pakistan tensions, and a warning from Beiersdorf hammered consumer staples stocks while Air France-KLM and Marks & Spencer sank.
The pan-European STOXX 600 index closed down 0.3 percent, having touched its highest level since the beginning of October on Tuesday. All continental bourses were in the red save Italy, boosted by its heavy weighting to banks.
The exporter-heavy FTSE 100 lagged the broader market as sterling lingered near five-month highs against the dollar amid fresh hopes that a no-deal Brexit could be avoided.
Investors were still awaiting fresh news on China-U.S. trade talks, but sentiment overall was gloomy with a growing confrontation between India and Pakistan rattling confidence in assets considered risky.
"Geopolitical tensions between Pakistan and India have strongly impacted equities from Tokyo to London today, with investors fearing a further escalation," said Pierre Veyret, analyst at ActivTrades.
Among individual moves, shares in Air France KLM suffered their worst day in more than a decade after the Dutch government said it would take a 14 percent stake in the airline. The move highlighted tensions between the Netherlands and its French partners in the company.
"We worry that tensions at the board level will make CEO Ben Smith's job of crafting a meaningful future for the group significantly more challenging than it was to begin with," said Bernstein analysts.
Investors also punished Beiersdorf, which plunged to two-year lows after the Nivea skin cream maker issued a shock warning about its 2019 operating margins, with the company's new CEO declaring the consumer goods industry was in "turmoil".
Unilever, Henkel and Reckitt Benckiser were all dragged down with Beiersdorf, which lost 9.8 percent.
Alongside the results outlook, the company said it would invest to compete with niche brands disrupting the sector.
"Beiersdorf have joined Henkel, Colgate and Coke in 'the reset club' in a dramatic first act by new CEO Stefan de Loecker and CFO Desi Temperley," said Jefferies analyst Martin Deboo.
"Not keeping up to date with changing consumer needs is having a material impact on those companies who have so far done little to adapt and are left with no choice but to invest to catch up," said UBS analysts.
British retailer Marks & Spencer plunged 12.5 percent after announcing it would finance its $1 billion food delivery tie-up with Ocado by issuing shares and cutting its dividend.
Bayer was a bright spot, rising 4.2 percent after delivering better-than-expected results, boosted by its recent Monsanto acquisition.
Danish hearing aid maker GN Store topped the STOXX 600, surging 13 percent as investors welcomed its results.
Bank stocks were an outlier, rising 1.5 percent after Bundesbank President Jens Weidmann said the European Central Bank need not formally delay a planned interest rate increase.
The German cabinet also gave the green light for Weidmann to serve a second eight-year term, keeping him, a monetary policy hawk, in the mix as a possible successor to ECB chief Mario Draghi later this year. ($1 = 0.7531 pounds) (Reporting by Josephine Mason and Helen Reid, Editing by Danilo Masoni and Mark Heinrich)