(Corrects name in 8th para to Jerry Avenell from Jerry Avel) * EuroSTOXX 50 down 1 pct, FTSEurofirst down 0.7 pct * FTSE MIB hit by Italian financial transaction tax * Chinese data weighs on miners By Toni Vorobyova LONDON, March 1 European shares fell on Friday, erasing earlier gains after an unexpected contraction in UK manufacturing, along with weak numbers from China and impending U.S. budget cuts, stoked worries about the global economy. The UK manufacturing PMI fell to 47.9 in February, plunging back into contraction after just two months of growth and raising the risk of Britain slipping into recession for a third time in four years. Combined with news of higher-than-expected unemployment in the euro zone, a slowdown in Chinese factory growth and the prospect of $85 billion of U.S. budget cuts kicking in from Friday, the UK news sparked a turnaround in the market, outweighing the impact of new investor inflows at the start of the month. "I can't see much of a positive catalyst in the near term ... I would wait for a better buying opportunity," said Robert Quinn, chief European equity strategist at S&P Capital IQ Research. He forecast that European equity markets could lose up to 5 percent in the next month or two. The pan-European FTSEurofirst 300 index was down 0.7 percent at 1,163.40 points by 1057 GMT, after a jittery start darting either side of the no-change line. The EuroSTOXX 50 euro zone blue chip index was down 1 percent, while London's FTSE 100 - which tends to be relatively resilient to British data given the global focus of many of its constituents - fell 0.3 percent. Milan's FTSE MIB was the worst performer among the main regional bourses, down 1.5 percent on the first day of a new Italian financial transaction tax, which is expected to hit volumes in cash equities and derivatives. "It's not good for the broader market. If there is less liquidity in Italian markets, market participants are going to feel the impact of that," said Jerry Avenell, co-head of sales at BATS Chi-X Europe. The tax comes at a time when investors were already turning cautious on Italy, following a stalemate election result which has left no party with enough power to form a government. Three hours into the session, volumes on the FTSE MIB were at 30 percent of their 90-day daily average, against 36 percent for the FTSEurofirst 300 - which includes some Italian stocks - and nearly 45 percent for Britain's FTSE 100. Among the sectors, basic resources fared the worst, down 2.5 percent after data confirmed that Chinese factory growth slowed to multi-month lows last month, potentially boding ill for future metals demand. Signs of another delay in the planned merger between commodities trader Glencore and gold miner Xstrata also weighed on the sector, with the stocks down 3.7 and 3.9 percent, respectively. The traditionally more defensive sectors like food and beverages and healthcare outperformed. Some analysts, though, said the weakness in the sectors more exposed to the economic cycle could open up a good buying opportunity for the slightly more long-term investors, given the still intact expectations for improved growth later in the year and the continued central bank stimulus. "We still have a very expansionary monetary policy ... and we still think it's good to buy cyclical sectors, industrial shares because these should be the beneficiaries of the economic improvement in the second half," said Carsten Klude, head of investment strategy at M.M. Warburg. (Reporting by Toni Vorobyova; Editing by Ruth Pitchford)
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