UPDATE 2-Travel stocks slump in Europe as virus cases surge, banks drag

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* Travel stocks slide after talks of second UK lockdown
* Euronext jumps on exclusive talks to acquire Borsa
Italiana
* Bankia-Caixabank merger fails to boost banking stocks
* STOXX 600 posts small weekly gain

(Updates to market close)
By Sruthi Shankar
Sept 18 (Reuters) - European equity markets closed lower on
Friday, with travel, banking and auto shares leading declines as
a resurgence in coronavirus cases across the continent rekindled
fears about the pandemic's impact on a nascent economic
recovery.
The pan-European STOXX 600 index .STOXX fell 0.7%, with
the banking-heavy Spanish index .IBEX down 2.2% and the French
.FCHI and Italian .FTMIB bourses more than 1% lower.
London's FTSE 100 .FTSE slipped 0.7%, with British-Airways
owner ICAG IAG.L , easyJet EZJ.L and cruise operator Carnival
CCL.L down between 8% and 15% as talk of a second lockdown in
the United Kingdom did the rounds after new COVID-19 cases
almost doubled to 6,000 per day. Travel and leisure was the worst-performing sector .SXTP ,
down 3.5%.
Other European nations from Denmark to Greece announced new
restrictions to curb surging coronavirus infections in some of
their largest cities. "If the uptick in cases becomes strong enough that lockdowns
have to be tightened to a point that it derails the economic
recovery, then it becomes a risk factor," said Mobeen Tahir,
associate director of research at fund house Wisdom Tree.
The banking index .SX7P fell 2.6%, hitting its lowest
level since May 26 and on course for record-lows as major
central banks pledged to keep interest rates lower for a long
time, with the Bank of England looking at taking borrowing costs
to sub-zero levels, if needed.
Sparking hopes of consolidation among lenders battling the
fallout from the COVID-19 pandemic, Caixabank CABK.MC agreed
to buy state-owned Bankia BKIA.MC for 4.3 billion euros ($5.10
billion) to create Spain's biggest domestic bank. Bankia BKIA.MC fell 4.8% and Caixabank CABK.MC was down
2.2% after rallying in the run up to the announcement.
Swedbank SWEDa.ST , SEB SEBa.ST , Handelsbanken SHBa.ST
and Nordea NDAFI.HE were down between 1.8% and 5.3% on fears
that the Swedish banks will bear the brunt of a recently
proposed government "risk tax". Separately, Sweden's financial watchdog said it was
investigating Swedbank for potential market abuse. The STOXX 600 still eked out 0.2% weekly gain as some major
retail companies showed resilience in earnings earlier this week
and a string of takeovers enlivened global M&A activity.
The London Stock Exchange Group LSE.L entered exclusive
talks to sell Borsa Italiana to France's Euronext ENX.PA ,
driving its shares up 4.3%.
Swedish telecoms gear maker Ericsson ERICb.ST was up 1.3%
after it agreed to buy U.S.-based wireless networking company
Cradlepoint in a $1.1 billion deal.