European shares end two days of gains as ECB, Brexit sap confidence

By Danilo Masoni and Josephine Mason

MILAN/LONDON (Reuters) - European shares fell on Thursday, snapping two days of gains, as worries about euro-zone growth and the UK's prolonged divorce from the European Union weighed, offsetting conciliatory signs in the U.S.-China trade war and Rome's budget compromise.

The pan-European STOXX 600 <.STOXX> benchmark index fell 0.2 percent following a two-day rally, with German and French bourses in the red after the European Central Bank (ECB) trimmed its growth forecasts.

UK stocks seesawed between positive and negative territory as investors digested the fallout of Prime Minister Theresa May surviving a leadership challenge.

The FTSE 100 <.FTSE> ended down 0.04 percent.

While May's victory increased the chances of a soft Brexit, the outcome of the final deal was far from certain and likely delayed into the new year, prolonging the market uncertainty that has punished shares this year.

In Frankfurt, the ECB officially ended its lavish post-crisis asset purchase scheme but signalled it would take its time before tightening policy given slower growth, the looming trade war, potential for a hard Brexit and budget tensions in Italy and France.

"Early gains for Wall Street are slipping away, while in Europe the more positive atmosphere of the morning has been replaced by a more cautious outlook," said Chris Beauchamp, chief market analyst at IG.

"While (ECB governor Mario) Draghi was at pains to say that 'significant' stimulus was still necessary, the lack of any detail meant that the positive impact of this comment was short-lived."

The German DAX <.GDAXI> index, which has been supported this week by optimism that Washington and Beijing could reach a deal over trade, turned lower, falling 0.04 percent, while France's CAC <.FCHI> was 0.3 percent lower.

"While the UK government faces challenges of its own, the economic environment in Europe is no less challenging given the recent unrest in Paris," said Michael Hewson, CMC Markets UK chief market.

Some disappointing earnings also weighed.

Metro fell 11 percent after the German wholesaler predicted a fall in profits due to its struggling Russian business.

GAM plummeted 22 percent to its lowest in almost two decades after the Swiss asset manager posted a big loss and omitted dividend.

However, Italian stocks outperformed, with the country's banking index <.FTIT8300> up 0.7 percent after the government cut its deficit goal for 2019. EU Commissioner Pierre Moscovici said the bloc was having constructive talks with Rome.

Shares in Banca Mediolanum rose 1.9 percent and Unicredit rose 1.2 percent.

Metro Bank (OTC: MTRO) lost 5 percent after a Citi downgrade.

Elsewhere, Plastic Omnium advanced 7 percent after an upbeat update from the French plastic processing group, while G4S (OTC: GFS) rose 6.8 percent after the British security company said it was looking at a separation of its cash solutions business.

(Reporting by Danilo Masoni and Josephine Mason; Editing by Gareth Jones and Kisten Donovan)

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