* FTSEurofirst 300 down 0.4 percent
* Miners hit by China data
* Shell, ENI buoyed by Qatar stake buy report
* Vallourec slumps on 2012 warning
By Tricia Wright
LONDON, May 11 Weak banks heaped pressure on European shares on Friday after a huge loss from JPMorgan and mounting concern over Spain's lenders dealt investor confidence a sharp blow.
The FTSEurofirst 300 was down 0.4 percent at 1,014.57 by 1141 GMT, knocked by banks after JPMorgan Chase & Co said a failed hedging strategy cost it at least $2 billion in trading losses.
Barclays, which has a big exposure to U.S. investment banking, was among the worst hit of the European banks, down 3 percent.
Although the loss was specific to JPMorgan, it could have broader painful implications - raising the threat of further regulatory scrutiny and the difficulties of risk management, analysts said.
The FTSEurofirst 300 earlier today dipped into bearish territory around the 61.8 percent Fibonacci retracement level - at about 1,011 - of the rally spurred by the European Central Bank's handouts of cheap three-year loans to banks in December and February.
"The only thing that will once again turn these markets around ... is if central banks - the ECB, the Bank of England, the Federal Reserve - indicate they are going to inject money into the system," Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels, said.
"Recently they have announced that they are not planning on doing that in the short term, so that probably means the negative news will continue to dominate."
Spain's banking problems loomed large in investors' minds, with UBS warning of "significant risks" to Spanish banks, its sovereign debt and the economy if Madrid's plan to shore up the country's lenders disappoints.
UBS reiterated "sell" ratings on Banco Santander, Banco Sabadell and Bankinter, flagging risks of stock dilution and estimates downgrades with Spanish lenders expected to face demands to siphon off their toxic real estate assets and make new provisions.
Greece's political outlook also took its toll on sentiment, with the country appearing unable to form a government following Sunday's inconclusive election.
Manish Singh, head of investment services at Crossbridge Capital, which has more than $2 billion dollars under management, said he is "definitely not bearish" on a long term view on the grounds that the political will exists to resolve the Greek situation.
"If Greece leaves the euro in a disorderly event nobody is a winner so I think the most likely option is that the EU, ECB and the IMF are going to throw a little bone to the left parties in Greece and it will all come to a head."
Singh highlighted the construction and industrial sectors, with stocks such as France's Saint Gobain and Schneider Electric, expecting them to benefit from increased spending from European authorities as the policy focus shifts from austerity to growth.
Miners suffered a sharp sell-off on further weak economic data from top metals consumer China, with below-forecast April industrial output taking the sheen off earlier news that annual consumer inflation moderated in April.
Corporate earnings news also made for grim reading on Friday.
Vallourec, a French maker of seamless steel tubes, was easily the worst performer on the FTSEurofirst 300, down 20 percent, in hefty trading volumes at nearly six times the 90-day daily average after halving its 2012 sales outlook.
Spain's Telefonica shed 2.1 percent as its first-quarter net profit halved after the value of its stake in Telecom Italia plunged following a capital increase, and it cut prices in its recession-hit home country.
M&A newsflow helped dispel some of the gloom, with Qatar continuing its overseas buying spree, snapping up a stake in Royal Dutch Shell and reportedly also eyeing a chunk of Italian oil major ENI.
ENI advanced 1.3 percent, in trading volumes at nearly five times the 90-day daily average, while Shell rose 0.3 percent.
($1 = 0.6188 British pounds) (Reporting by Tricia Wright; Additional reporting by Francesco Canepa; Editing by Ruth Pitchford)