UPDATE 2-European stocks sapped by weak economic data, travel curbs

  • Reuters
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UPDATE 2-European stocks sapped by weak economic data, travel curbs
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* STOXX up 0.2% on the week after Friday's slide

* Travel stocks slump as EU proposes travel curbs

* Euro zone business activity shrinks in Jan

(Updates to market close)

By Sruthi Shankar and Amal S

Jan 22 (Reuters) - European stocks ended lower on Friday, closing out another lacklustre week as business activity in the euro zone shrank in January after stringent lockdowns to control the coronavirus pandemic shuttered many businesses.

The pan-European STOXX 600 index .STOXX fell 0.6%, but clung to a small 0.2% rise for a week, dominated by hopes for massive U.S. stimulus under President Joe Biden.

Travel and leisure stocks .SXTP fell 2.5%, leading declines among sectors amid concerns over fresh travel restrictions in Europe. Other economically sensitive sectors like banks .SX7P , oil & gas .SXEP and mining .SXPP shed more than 1%.

IHS Markit's flash composite Purchasing Mangers' Index (PMI) for the euro zone fell further below the 50 mark separating growth from contraction, hitting 47.5 in January from December's 49.1. bloc's dominant service industry was hit hard with hospitality and entertainment venues forced to remain closed, but manufacturing remained strong as factories largely stayed open.

The auto-heavy German DAX .GDAXI fell 0.2%, France's CAC 40 .FCHI dropped 0.6%, and euro zone stocks .STOXXE were down 0.6%.

The sealing of a post-Brexit trade deal, unprecedented stimulus measures from central banks and governments, and hopes that COVID-19 vaccines will spur a faster economic rebound drove the STOXX 600 to a near 11-month high this week.

"There is quite a big discussion in the market on whether the consensus is too bullish, or if we need to have a pullback," said Graham Secker, chief European equity strategist at Morgan Stanley (NYSE: MS ).

"I think this is more about the fact the markets had a strong run over the past few months. Maybe it gives people an excuse for some profit-taking.

"While the long-term narrative is intact, the market tends to give the benefit of doubt."

A European Central Bank survey showed the euro zone economy is likely to rebound this year - but at a slower pace than expected only a few months ago - before making up the lost ground in 2022. Lufthansa LHAG.DE , Air France AIRF.PA and British Airways-owner IAG ICAG.L fell between 2.5% and 3.4%, while holiday group TUI (LON: TUIT ) TUIGn.DE tumbled 17.2% after the European Union proposed to label hotspots of COVID-19 infections as "dark red" zones.

Travellers from those areas will have to take a test before departure and undergo quarantine. UK's FTSE 100 .FTSE fell 0.3% and midcap stocks .FTMC slid 1.0% after Britain's retail sales marked a weak end to their worst year on record in December, while business activity contracted sharply in the latest month. stocks .FTMIB fell 1.5% after the country's main ruling parties flagged snap elections as the only way out of its political impasse if Prime Minister Giuseppe Conte fails to drum up a parliamentary majority after scraping through a confidence vote this week. limit losses in Germany's DAX, engineering group Siemens AG SIEGn.DE jumped 7.3% on stronger-than-expected preliminary results for its first quarter. world's largest carmaker Volkswagen VOWG_p.DE rose 1.9% as a rebound in premium car sales in China and stronger fourth-quarter deliveries helped keep it in the black last year, though its profit almost halved due to the impact of the pandemic.

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