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* Pan-European STOXX index down 0.5 percent
* Ericcson slumps after profit warning
* Airline Lufthansa lifted by upgrade
* Citi says Italian banks' asset quality improving (ADVISORY- Follow European and UK stock markets in real time on the Reuters Live Markets blog on Eikon - see cpurl://apps.cp./cms/?pageId=livemarkets)(Adds closing prices, details)
By Kit Rees and Danilo Masoni
LONDON/MILAN, Oct 12 (Reuters) - European stock markets fell slightly on Wednesday with Sweden's Ericsson slumping to eight-year lows after issuing a profit warning.
The STOXX 600 index fell 0.5 percent, losing ground for the second straight session. So far this year the index is down 7.4 percent.
Germany's DAX also fell 0.5 pct, while Britain's blue-chip FTSE 100 index and the FTSE 250 mid-cap index < .FTMC> both dropped around 0.7 percent.
Telecoms equipment maker Ericsson dropped 20 percent to its lowest point since 2008 after warning that its third-quarter profit would be "significantly lower" than expected after a downturn in its mobile broadband business had accelerated.
The world's biggest maker of mobile network equipment reported a 94 percent plunge in quarterly operating profit and tumbling sales at its core networks division.
"They're near the bottom of the pile in terms of mobile now, in the age of Apple and Samsung, Ericsson don't really have a look-in," Jonathan Roy, advisory investment manager at Charles Hanover Investments, said.
"They haven't really come up with any new or exciting products, so I wouldn't be surprised to see them go further down."
Peer Nokia also dropped, down 5.1 percent, set for its biggest daily loss since June 27.
Among the top risers, however, Deutsche Lufthansa gained 4.3 percent after an upgrade from Kepler Cheuvreux.
UK staffing firm PageGroup extended its gains from the previous session, up 3.3 percent following a spate of target price upgrades. The company reported a set of better than expected results in the previous session.
"Trading in the third quarter was better than expected as demand in the UK held up better than feared," analysts at Barclays said, adding that they expected a more gradual decline in demand over 2017 and 2018.
Italian lenders outperformed a flat bank sector, with UBI Banca, Banco Popolare and UniCredit up between 2.4 and 6 percent, after an upbeat note from Citi.
"Asset quality is starting to recover and the main sector issues are well-known and reflected in current low valuation, due to fear on system stability," Citi said in a note.
Italian banks have been among the worst performers in their sector this year on concerns over capital shortfalls and a mountain of bad loans. (Editing by Sudip Kar-Gupta and Dominic Evans)