* Spanish and Italian stocks fall
* Greek banking shares bounce as gov’t says it won’t appoint execs
* FTSEurofirst 300 up 0.2 pct after late recovery
By Francesco Canepa
LONDON, Feb 2 (Reuters) - Spanish and Italian shares weighed on European equity indexes 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 its existing funding arrangement with the European Union, European Central Bank and International Monetary Fund “troika” when it 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 the appetite for assets in countries such as Spain and Italy, where anti-austerity parties have also gained popularity.
Analysts at Goldman Sachs on Monday withdrew their preference for Italy’s FTSE MIB index and Spain’s Ibex , which closed down 0.1 percent and 0.7 percent respectively, 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 the Spanish anti-austerity party Podemos (“We can”), 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,” said Montaigne Capital fund manager Arnaud Scarpaci.
Further denting investor sentiment on peripheral countries, Spain’s third-largest lender Bankia fell 0.7 percent after saying it was delaying results due on Monday.
Telefonica also weighed on the Ibex after El Confidencial reported that the telecoms group may soon carry out a 5 billion euro ($5.7 billion) capital increase that had been flagged when it announced the acquisition of Brasil’s GVT last year.
Greek shares recovered, however, rising 4.6 percent after a spokesman said the government would not take any action that would hurt the share values of Greece’s banks, and did not plan to appoint party officials to key management posts.
Eurobank was up 14.6 percent while National Bank of Greece gained 9.2 percent. Athens’s ATG index is still down 9.7 percent since Syriza was elected little over a week ago.
The FTSEurofirst 300 index of top European shares closed 0.2 percent higher at 1,467.73 after a late recovery that mirrored gains on Wall Street. The benchmark posted its best monthly performance in more than three years in January, rising 7.1 percent. ($1 = 0.8820 euros) (Additional reporting by Blaise Robinson; Editing by Kevin Liffey)