February 2, 2015 / 3:11 PM / 3 years ago

Spain, Italy cap European shares on Greek nerves

* FTSEurofirst 300 down 0.5 pct after bumper January

* Spanish, Italian stocks lead falls on Greek nervousness

* Greek banking shares bounce as govt says won't appoint execs

By Francesco Canepa

LONDON, Feb 2 (Reuters) - Spanish and Italian shares led European equity indexes lower on Monday as investors grew more worried about the possible ramifications of Greece's debt negotiations for the rest of the euro zone periphery.

In its first week in office, Greece's new government has made clear it wants to end the existing arrangement with the European Union, European Central Bank and International Monetary Fund "troika" when its aid deadline expires on Feb. 28.

Investors had taken the view that the impact of a Greek crisis could be contained. But the prospect of tough negotiations between Greece and its lenders is starting to sour appetite for assets in countries such as Spain and Italy, where anti-austerity parties have also gained popularity.

Analysts at Goldman Sachs wrote on Monday they were withdrawing their preference for Italy's FTSE MIB index and Spain's Ibex, which were down 0.7 percent and 1.7 percent at 1509 GMT, over the STOXX Europe 600.

"We recommend closing tactical pro-cyclical exposures in peripheral ... equities (overweight MIB and IBEX vs. SXXP) until more clarity emerges about the direction ongoing negotiations between the new Greek government and the European authorities are taking," they said in a note.

On Saturday, tens of thousands marched in Madrid in the biggest show of support yet for Spanish anti-austerity party Podemos, whose policies have drawn comparisons with the Syriza party that now governs Greece.

"Spanish banks are being hit because investors worry that Syriza's anti-austerity drive spreads to Spain and boosts Podemos," Montaigne Capital fund manager Arnaud Scarpaci said.

Further denting investor sentiment on peripheral countries, Spain's third-largest lender Bankia fell 1.9 percent after saying it was delaying results due on Monday.

Greek shares recovered, however, rising 4 percent after a spokesman said the government would not take any action that would hurt the share values of the country's banks and did not plan to appoint party officials to key management posts.

Eurobank was up 18 percent while National Bank of Greece gained 7.8 percent. Athens's ATG index is still down 9.7 percent since Syriza was elected little over a week ago.

At 1508 GMT, the FTSEurofirst 300 index of top European shares was down 0.5 percent at 1,457.17 points, having extended losses after weaker-than-expected U.S. manufacturing and construction data.

The benchmark posted its best monthly performance in more than three years in January, rising 7.1 percent. (Additional reporting by Blaise Robinson; Editing by Catherine Evans)

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