UPDATE 2-HSBC and Nokia drag European stocks lower amid virus worries

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* HSBC hit by report Trump aides want to undermine USD/HKD peg

* Nokia falls on concerns over potential loss of Verizon (NYSE: VZ ) business

* Britain cuts VAT for hospitality sector; FTMC hits session highs

* Ostred jumps; signs power deal with Taiwan's TSMC (Updates to close)

By Sruthi Shankar and Susan Mathew

July 8 (Reuters) - HSBC and Nokia dragged European shares lower on Wednesday as a surge in coronavirus cases appeared to threaten a recovery in the global economy, while Britain's plan to head off an unemployment crisis cushioned a fall in London's domestically focused stocks.

The pan-European STOXX 600 .STOXX fell 0.7% with banks .SX7P , travel & leisure .SXTP and auto stocks .SXEP dragging. Limiting losses were gains in basic material stocks .SXPP and utilities .SX6P .

The UK mid-caps index .FTMC cut some session losses before closing 1% down, after finance minister Rishi Sunak promised an additional 30 billion pounds ($38 billion) in stimulus. This included bonuses to get furloughed staff back to work and a cut in value added tax for the hospitality sector. and strategists at ING said that, while the announcements were innovative, they were unlikely to completely change the game for the UK's economic outlook and would provide only a small respite for markets.

ING's James Smith and Petr Krpata said uncertainty surrounding UK-EU trade negotiations would "dominate the story", especially for sterling.

London's blue-chip index .FTSE was weighed down by HSBC HSBA.L tumbling 3% after Bloomberg reported that U.S. President Donald Trump's top advisers had considered measures to undermine the Hong Kong currency's peg to the U.S. dollar. The proposal could potentially limit the ability of Hong Kong banks to buy dollars. the STOXX 600, Nokia NOKIA.HE was the worst performer, slumping 8.1% on concerns that it was losing the business of its key client Verizon VZ.N in the United States. JPMorgan (NYSE: JPM ) downgraded it to "neutral". hopes for global recovery, U.S. coronavirus outbreak crossed a grim milestone of over 3 million confirmed cases, while the World Health Organization acknowledged "evidence emerging" that the virus could spread through the air. STOXX 600 had climbed to a near one-month high earlier this week as improving economic data and bets of a swift rebound in China drove gains, but investors remained cautious about the progress of a European Union recovery fund and the upcoming earnings season.

Analysts expect companies listed on the STOXX 600 to report a 53.9% decline in profit in the second quarter, according to Refinitiv data.

Denmark's Orsted ORSTED.CO jumped 4.8% after signing the world's largest corporate renewable power deal with Taiwan Semiconductor Manufacturing Co 2330.TW . UK online fashion retailer Boohoo BOOH.L slumped for the sixth day running, hit by news that Next Plc NXT.L , Zalando SE ZALG.DE and Amazon.com Inc AMZN.O were delisting its products.