Defensives drag European shares lower; Apple suppliers jump

* STOXX 600 down 0.2 pct

* Consumer staples, real estate outweigh cyclical strength

* Apple suppliers rise as JPM upgrades STMicro

* Split among UK retailers after M&S results

* Staffing companies hit by Deutsche Bank downgrades
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By Helen Reid

LONDON, July 11 (Reuters) – European shares reversed early
gains to turn lower on Tuesday as heavy losses among defensive
consumer staples and real estate stocks outweighed strength in
autos, miners and banks.

The pan-European STOXX 600 edged down 0.3 percent,
while euro zone stocks and blue-chips
dipped 0.1 percent, in muted trading punctuated by early
earnings updates and more corporate deal-making.

Consumer staples including food and drink companies
and household goods were the biggest drags, with real
estate stocks also falling 0.9 percent.

Autos stocks were a bright spot, up 0.8 percent,
after data showed Chinese passenger car sales rose.

“We note that defensive equity sectors earnings have
generally weakened while cyclical sectors keep their positive
momentum,” said Valentin Bissat, equity analyst at Mirabaud
Asset Management.

“Overall for the region, the equity risk premium has
decreased, which in turn increases companies’ buybacks, a trend
which is likely to continue in the short term as reduced
uncertainties and a cyclical recovery decrease the necessity to
hold liquidity in cash,” Bissat added.

Pearson wiped out early gains to fall to the bottom
of the STOXX, down 3.5 percent after selling a 22 percent stake
in publisher Penguin Random House.

Analysts at Liberum, which has a ‘sell’ rating on the
restructuring education publisher, were sceptical over the
details of the deal.

Marks & Spencer reported a rise in full-price sales,
but its shares fell 1.9 percent, partly on the back of
underwhelming food sales, while rivals Tesco and
Morrisons rose.

Broker notes spurred some of the biggest individual moves,
with semiconductor makers STMicro and AMS top
gainers after JP Morgan raised STMicro – a supplier to tech
giant Apple – to ‘overweight’.

“We believe that the market is too cautious on STMicro,”
wrote European tech analyst Sandeep Deshpande.

Deshpande also said Apple suppliers would have a strong
second half, calling the market too sceptical and predicting the
semiconductor stocks would meet or beat expectations.

Among the top individual drags on the STOXX 600 were
Randstad and Adecco, targeted by Deutsche
Bank in a note on staffing firms.

Analysts at Deutsche cut ratings for the world’s two largest
staffing companies, saying current employment levels in the
United States and Europe were associated with peaking 12-month
investor returns.

British recruitment firm Hays followed its European
peers down 2.4 percent.

Meanwhile, in the incipient European earnings season, a
strong update from Danish insurer Tryg pushed it up
3.5 percent to a two-year high. Berenberg analyst Iain Pearce
said a special dividend could be expected at year-end.

Steel industrials firm Thyssenkrupp rose 2.3
percent after saying it would cut 2,000 to 2,500 jobs by the end
of the 2019/2020 fiscal year.

(Reporting by Helen Reid; Editing by Vikram Subhedar and Mark