UPDATE 2-ECB upset knocks European stocks

* STOXX 600 down 0.4 pct
* Euro zone banks sink as ECB pushes out rate rise to 2020
* Defensive stocks outperform
* Earnings hurt Hugo Boss , Axel Springer (Updates prices, adds post-ECB moves, quotes)
By Danilo Masoni and Helen Reid
MILAN/LONDON, March 7 (Reuters) - European shares fell from five-month highs on Thursday after the European Central Bank changed its interest rate guidance and announced a new round of cheap bank loans sooner than expected, though with tougher terms than previous rounds.
Euro zone banks .SX7E sank 3.3 percent, their worst day since Dec. 6, as the ECB's announcement of a new Targeted Long-Term Refinancing Operation (TLTRO) failed to soothe investors' concerns about the pushing out of rate hikes.
Investors also took the surprise announcement as a sign the central bank is more concerned about growth than they thought.
"We didn't think they would go full out to announce TLTROs this time; that change in tone seems to worry the markets a little bit," said Donough Kilmurray, head of the Investment Strategy Group for Private Wealth Management at Goldman Sachs (NYSE: GS ).
"Bank stocks are the more volatile expression of market fears about the growth outlook, and pushing rate hikes into next year makes it tough to see bank earnings growing," Kilmurray, who has an overweight position in euro zone banks, added.
Italian banks .FTIT8300 , which used the largest share of the previous round of loans, dropped 2.6 percent, their biggest fall in five weeks.
Part of the selloff was down to disappointment the ECB was offering less generous terms than previously for the ultra-cheap bank loans.
"The TLTRO wasn't as favourable as it could have been for financials, in terms of the maturity and the conditions," said Edmund Shing, head of equities and derivatives strategy at BNP Paribas (PA: BNPP ).
To be launched in September and end in March 2021, the loans would have a shorter maturity than previously and the rate will be variable and linked to the ECB's main refinancing rate.
Sinking banks dragged the pan-European STOXX 600 .STOXX index down 0.4 percent, while Germany's DAX .GDAXI fell 0.6 percent. Deutsche Bank DBKGn.DE , Bankia BKIA.MC , and UBI Banca UBI.MI were among the top fallers.
"The key point is (the ECB) pushed out any hope of an interest rate rise, not just far into the long grass but that's it for the cycle," added Shing.
Banks aside, other cyclical sectors also sank. The export-oriented autos sector .SXAP fell 2.3 percent, extending a slide on worries over the sector's prospects amid slowing Chinese growth.
German carmakers Daimler DAIGn.DE and BMW BMWG.DE fell 3.4 and 2 percent following a downgrade from Bankhaus Lampe to hold and sell respectively.
Basic resources stocks .SXPP were the worst-performing, down 2.5 percent as copper prices fell.
Gains in defensive sectors like utilities, telecoms, and food & beverages - which hit a record high - were not enough to offset broader market weakness.
Turnover on all major exchanges from Paris to Madrid to Milan blasted through long-term daily averages. On the blue-chip euro-zone benchmark .STOXX50E , volumes were 145 percent of the 90-day average daily volume.
Earnings drove the biggest share price moves.
German luxury goods firm Hugo Boss BOSSn.DE had its worst decline in seven months, ending the day down 7.3 percent after results and guidance disappointed the market. see guidance implying a lower-quality type of growth versus our initial impression," wrote Morgan Stanley (NYSE: MS ) analyst Elena Mariani in a note.
A weak outlook sent shares in German publisher Axel Springer SPRGn.DE down 6.7 percent to a two-year low, while in-line results and a share buyback announcement sent brewer Royal Unibrew RBREW.CO up 1.7 percent.
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