UPDATE 2-Italy leads European shares lower on political uncertainty

(For a live blog on European stocks, type LIVE/ in an Eikon
news window)
* Italian banks tumble after Salvini calls time on
government
* Healthcare rally, WPP surge, weaker pound limit losses in
London
* Trump says not going to make deal with China

(Updates to close)
By Susan Mathew and Shreyashi Sanyal
Aug 9 (Reuters) - European shares slid on Friday with
Italian stocks 2.5% lower on political uncertainty, while
comments by U.S. President Donald Trump that he was not going to
make a trade deal with China also weighed on sentiment.
Italy's main index .FTMIB touched a two month low with its
bank index .FTIT8300 tumbling 4.5% after the leader of the
ruling League party, Matteo Salvini, pulled his support for the
country's governing coalition on Thursday and called for fresh
elections.
Italy's budget crisis and prospect of ultra low interest
rates for longer have already damaged bank stocks' valuations
and the fresh political concerns sent the bank index to its
lowest since September 2016.
Italian 10-year government bond yields were set for their
biggest weekly rise this year. "It leads to uncertainty because obviously we don't know
when it will be possible for Italy to improve their budget
because they've only just come to an agreement with Brussels,
which could very easily be upended," said Elwin de Groot,
Rabobank's head of macro strategy.
Along with drops of more than 1% in most other major
indexes, including trade-sensitive German stocks .GDAXI , the
pan-European STOXX 600 index .STOXX gave up 0.8%, in line with
a move lower in world stocks .MIWD00000PU . MKTS/GLOB
Trump's remarks on a trade deal with China followed a report
that said Washington was delaying a decision to allow some trade
between U.S. firms and China's telecom equipment maker Huawei
again.
This added to worries about an escalation in trade tensions
between the world's two biggest economies, which has seen the
STOXX 600 give up 1.7% over the week as investors worry over a
prolonged impact on global economic growth.
Sectors most exposed to China and trade issues, such as
technology .SX8P , basic materials .SXPP and automakers
.SXAP , led losses in Europe along with banks .SX7P .
"It is a risk-off sentiment but investors aren't desperate
yet... its more like the realisation that we are in for a rough
ride," Rabobank's Groot said.
However, losses on London's FTSE .FTSE were limited by a
rally in healthcare stocks and a 7.2% surge in advertising
company WPP WPP.L after it reported improved second-quarter
trading.
The rise in the healthcare index .SXDP came after strong
results from Hikma Pharma HIK.L and Carl Zeiss AFXG.DE and
was also helped by a 2.6% rise in Bayer BAYGn.DE . The pound was hit by data showing Britain's economy
experienced a shock contraction in the second quarter in a
severe hangover from a pre-Brexit stockpiling boost, boding
poorly for Prime Minister Boris Johnson as he gears up to leave
the EU in October with or without a departure agreement.
GBP/