UPDATE 2-Banks, telecoms drag European stocks lower after recent rally

(For a live blog on European stocks, type LIVE/ in an Eikon
news window)
* STOXX 600 pulls back after Monday's strong rally
* Imperial Brands slides after dividend cut, profit warning
* Norwegian fish farmers rise after SalMar outlook

(Updates to market close)
By Sruthi Shankar
May 19 (Reuters) - European shares lost some ground on
Tuesday after a rally in the previous session, as falls for euro
zone banks and telecoms stocks countered optimism from a
stimulus plan for the European Union.
After rising as much as 0.5% at the open, the pan-European
STOXX 600 .STOXX gradually shed gains to close 0.6% lower.
Euro zone stocks .STOXXE also fell 0.7%, despite an early
boost from France and Germany's calls on Monday for the creation
of a 500 billion ($547 billion) euros recovery fund to offer
grants to EU regions and sectors hit hardest by the pandemic.
Investors locked in gains after hopes of a potential
COVID-19 treatment had driven the STOXX 600 to the biggest
single-day gains since March 24 in the previous session.
"We're following up yesterday with a bit of consolidation,
but I would not read too much into it," said Andrea Cicione,
head of strategy at TS Lombard.
Optimism over countries easing coronavirus-induced lockdowns
and trillions of dollars in fiscal and monetary stimulus has
helped the STOXX 600 rebound more than 26% from lows plumbed
earlier this year.
"You can see a shift in sectoral responses in Europe.
Financials and consumer discretionary stocks that had been
lagging in the recent recovery led gains yesterday. To me, that
is a sign that markets are reacting to something differently,"
added Cicione.
Telecoms stocks .SXKP led sectoral declines, as shares in
Telecom Italia TLIT.MI fell 8.6% after Italy's biggest phone
group gave no guidance on its 2020 core profit target as it
reported a drop in first-quarter earnings. Banking-heavy Spanish .IBEX and Italian .FTMIB bourses
led regional declines with a 2.5% and 2.1% fall respectively,
with some analysts pointing to the lifting of short-selling ban
across six EU states hitting shares of euro zone lenders.
"There are some concerns about the profitability and capital
outlook for euro zone banks, particularly in the periphery that
up until now, restricted the hedge funds' ability play the short
in those names," said Russell Quelch, a financials analyst at
Redburn said.
Shares in Banco de Sabadell SABE.MC tumbled 11.9% and
Bankia BKIA.MC dropped 11%, while Italian lender Banco BPM
BAMI.MI fell 7.3%.
However, wealth manager Julius Baer BAER.S rose 5% as it
saw a spike in trading volumes boost its first-quarter margins,
even though a strong Swiss franc ate into assets under
management. Automakers .SXAP struggled after data showed European
passenger car sales saw a record drop in April, the first full
month with restrictions imposed to contain the pandemic across
the continent. UK stocks .FTSE were also hit as shares in tobacco group
Imperial Brands IMB.L tumbled 6.5% after its plans to cut its
dividend by a third, and a profit warning due to the coronavirus
crisis.
Norwegian fish farmer SalMar SALM.OL jumped 9.3% after it
reported first quarter operating EBIT above estimates and
maintained its 2020 harvest expectations. Shares in peers Grieg Seafood GSFO.OL and Mowi MOWI.OL
rose 5% and 2.9%, respectively.