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* STOXX 600 falls, index down around 8 pct in 2016
* Pearson drops sharply after trading update
* Italian banks outperform on merger activity
By Sudip Kar-Gupta
LONDON, Oct 17 (Reuters) - European shares fell on Monday as weak-looking business updates from firms such as media group Pearson and Norwegian seafood company Marine Harvest weighed on the market.
The pan-European STOXX 600 index fell 0.7 percent, with the index down by around 8 percent so far in 2016.
Pearson fell 8.4 percent, the worst performer on Britain’s FTSE 100 and on the STOXX 600, after the company warned of tough trading conditions, even though cost cuts enabled it to maintain its full-year outlook.
“We see that there is a risk that the tight cost controls could end up exacerbating the lack of growth risk. We remain sellers of Pearson,” said Gary Paulin, head of global equities at Northern Trust Capital Markets.
Marine Harvest shares also fell 4.1 percent after the company cut its 2016 output guidance.
However, Italian bank stocks outperformed, although the FTSE All Italia Banks index, which rose 1.3 percent on Monday, remains down nearly 50 percent so far in 2016 on concerns over a mountain of bad debts.
The Italian banking sector was buoyed by merger activity, with UniCredit confirming it was in talks to sell its stake in Bank Pekao, while shareholders approved plans for a merger between Banco Popolare and Banca Popolare di Milano.
Nevertheless, equity markets were also dented by remarks late on Friday from U.S. Federal Reserve Chair Janet Yellen about the need for aggressive steps to rebuild the U.S. economy. which boosted long-dated U.S. bond yields.
Bond market jitters in Germany and Britain, with Britain’s 10-year government bond yield rising to its highest level since the day in June when the country voted to leave the European Union, also weighed on stock markets.
British gilt yields have soared over the past couple of weeks as investors anticipate a sharp bout of inflation in Britain, fuelled by the pound’s nosedive to all-time lows against a basket of currencies.
Analysts said the plunge in sterling caused by concerns over a so-called “hard Brexit” - in which Britain leaves the EU’s lucrative single market so as to impose controls on immigration - remains a cause of broader concern for European markets.
“I still see plenty of downside for these markets, given the fears over a hard Brexit,” said Berkeley Futures’ associate director Richard Griffiths. (Additional reporting by Danilo Masoni; Editing by Mark Heinrich)