UPDATE 2-European shares fall on China virus fears, German morale offers soft landing

* Airline stocks drop amid concerns over travel disruptions
* China-focused luxury, mining stocks fall
* Lonza Group top gainer on STOXX 600

(Updates to close)
By Ambar Warrick and Susan Mathew
Jan 21 (Reuters) - European shares dipped on Tuesday amid
concerns over a new coronavirus outbreak originating in China,
although positive news on business morale and easing
cross-Atlantic trade tensions saw markets ending off session
lows.
The increased threat of infection, as millions travel for
the Lunar New Year holidays, reminded investors of the economic
fallout from the SARS crisis in 2003 that killed nearly 800
people, and led to a recession in Hong Kong. The pan-European STOXX 600 .STOXX dropped 0.1%, having
fallen up to 1 percent earlier in the session before positive
German business sentiment data and trade dialogue between the
U.S. and French leaders helped ease some of the losses.
"The reaction in markets suggests that the virus fears
aren't necessarily going to be the main story... not enough that
good news wouldn't break through and help them reduce losses,"
said Connor Campbell, analyst at British financial spread better
Spreadex.
The STOXX 600 index had touched a record high last week as
easing U.S.-China trade tensions and improving economic
indicators raised hopes of faster global growth.
The shares of long-haul flight operators Air France
AIRF.PA , Lufthansa LHAG.DE and British Airways-owner IAG
ICAG.L retreated, as news of the contagion raised concerns
over disruptions to travel during a coming Chinese holiday.
China-exposed luxury goods makers including LVMH LVMH.PA ,
Kering PRTP.PA , Hermes HRMS.PA and Burberry BRBY.L also
fell.
The basic resources sector .SXPP , which consists of
several heavyweight China-exposed miners, was the worst
performing sector for the day.
Offering some relief to investors, French President Emmanuel
Macron said he had a "great discussion" with U.S. President
Donald Trump over a digital tax planned by Paris and that their
two countries would work together to avoid a rise in tariffs.
Also, a survey showed German investors were at their most
optimistic since mid-2015, following the U.S.-China trade truce.
The reading comes as growth in the EU bloc's largest economy
marked its slowest pace since 2013. "Optimism is growing that the bottom is firmly in place for
Germany and that an industrial rebound is right around the
corner," said Edward Moya, senior market analyst, OANDA, New
York.
Swiss drug developer Lonza Group LONN.S was the top gainer
on the STOXX 600 after it said it is seeking a drug industry
veteran as its new chief executive. German fashion house Hugo Boss BOSSn.DE gained 6.8% after
reporting a better-than-expected fourth-quarter sales growth.
Markets will now be focusing on the European Central Bank's
first policy meeting for the year on Thursday, as well as the
euro zone's Purchasing Manager's Index (PMI) data on Friday.