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Tech selloff causes sharpest fall in 3-1/2 months for European stocks

* STOXX down 1.6 pct, DAX down 2.2 pct

* Tech sector suffers biggest drop since Brexit vote

* LVMH, Kering, Moncler fall

* VAT Group drives tech down on weaker chip demand (Updates prices, adds details)

By Julien Ponthus and Helen Reid

LONDON, Oct 10 (Reuters) - European shares had their worst day on Wednesday since June as concerns around rising debt yields gripped equity markets worldwide, while tech stocks sank on signs of slowing demand in the semiconductor industry.

The pan-European STOXX 600 index tumbled 1.6 percent to its lowest since April 4 while Germany's DAX dropped 2.2 percent. It was the biggest fall for the STOXX since June 25.

U.S. stocks have also fallen sharply as U.S. Treasury yields climbed to a near seven-year high.

"The rise in yields has been especially swift ... Such a sharp move has always been tricky for equities to digest," said Goldman Sachs strategists.

The tech sector sank 4.3 percent, its worst day since the Brexit referendum selloff, as investors dumped the highly-valued sector on signs of weakening demand for chips.

Austrian chipmaker AMS fell 5.9 percent and peer STMicroelectronics lost 5.8 percent after VAT Group said it was cutting working hours at one of its factories due to a fall in demand from the chip equipment makers it supplies.

Shares in VAT Group sank 10.3 percent.

"On the one hand, the short time working reflects the well-known softening of the investment cycle in the semiconductor industry since Q2 2018 ... and on the other hand it also reflects the fact the industry weakness looks to be extending into Q1 2019," wrote Baader Helvea analysts.

The selloff in tech deepened with the Wall Street open, as the tech-heavy Nasdaq tumbled 2.3 percent.

Fears of a Chinese slowdown drove luxury stocks down too, also weighed by a Morgan Stanley downgrade of the sector to "underweight".

France's LVMH fell 7.1 percent even though results after Tuesday's close showed its fashion and leather goods unit did better than expected in the third quarter.

Morgan Stanley analysts said luxury stocks were likely to fall further due to slowing Chinese consumption, weakening earnings and sales momentum, and the sector's vulnerability to general underperformance of growth versus value stocks.

Moncler fell 10.9 percent, Kering fell 9.6 percent and Hermes lost 5.1 percent.

In Britain, signs of progress in Brexit negotiations helped to push sterling up, weighing on the FTSE 100 which dropped 1.3 percent. Luxury group Burberry fell 9 percent.

Italian banks were a notable exception to the general selloff, holding flat as yields on the country's sovereign debt fell after Economy Minister Giovanni Tria confirmed budget forecasts and said he expected a collaboration with the European Union over the budget.

The biggest European faller was Wirecard which sank 14.2 percent, the day after the German payments firm got a big boost when it unveiled new targets, saying it would deliver six times current EBITDA by 2025.

The stock has moved 9 percent or more every day this week, and fell on Wednesday despite many positive notes from brokers including an upgrade to "outperform" from Credit Suisse.

"The 'conservative' targets appear aggressive to us and require an enormous leap of faith in technology, footprint, execution and macro conditions," wrote Neil Campling, co-head of the global thematic group at Mirabaud Securities. (Reporting by Julien Ponthus and Helen Reid; editing by Keith Weir, Larry King and David Stamp)

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