UPDATE 3-Euro zone stocks drop as ECB warns of slowing growth next year

(For a live blog on European stocks, type LIVE/ in an Eikon
news window)
* ECB delivers stimulus as expected
* Euro zone banks drop
* Johnson, von der Leyen push trade deal deadline to Sunday
* EU summit begins; 1.8 trillion euro package eyed
* Oil, basic material stocks lead gains

(Updates to close)
By Susan Mathew
Dec 10 (Reuters) - Euro zone stocks hit a two-week low on
Thursday, with banks taking a knock after the European Central
Bank forecast a slower rebound in growth next year even as it
rolled out more stimulus measures to support the bloc's
pandemic-hit economy.
The STOXX euro zone index .STOXXE and Germany's DAX
.GDAXI both fell as much as 1% before paring losses to close
0.2% and 0.3% lower respectively, with oil stocks .SXEP
jumping on a surge in crude prices. O/R
An index of euro zone banks .SX7E ended down 2.1% despite
the ECB agreeing to provide lenders with even more ultra-cheap
liquidity.
Spain's lender-heavy IBEX index .IBEX led declines in the
region, down 0.6%.
The ECB increased the overall size of its Pandemic Emergency
Purchase Programme (PEPP) by 500 billion euros, in line with
market expectations and also extended the scheme by nine months
to March 2022. At a press conference following the decision, ECB President
Christine Lagarde said the bank expects euro zone GDP to expand
by 3.9% next year, slower than its September forecast of 5%. But
growth is seen at 4.2% in 2022, above a previous projection of
3.2%. "Central bankers have flooded bank balance sheets, but those
funds are not flowing through the economy normally. In other
words, the quantity of money is up but velocity is way down,
muting the economic impact," said Aaron Anderson, SVP of
Research at Fisher Investments.
The European STOXX 600 index .STOXX was down 0.4%.
Rising prices of copper and iron ore lifted Europe's
materials index .SXPP 0.3% to near 8-month highs.
MET/L IRONORE/
London's blue-chip index .FTSE , heavy with oil and
commodity-linked stocks, closed up 0.5%, further helped by a
pound hammered by Brexit trade deal uncertainty. GBP/
A meeting between British Prime Minister Boris Johnson and
European Commission President Ursula von der Leyen on Wednesday
yielded no breakthrough with the leaders giving themselves until
the end of the weekend to seal a new trade pact after failing to
overcome persistent rifts. Around $1 trillion in annual trade, currently free from
tariffs and quotas, is at stake if there is no agreement by the
end of the month when Britain leaves the bloc.
Meanwhile, the European Union summit began on Thursday with
leaders likely to unblock a stalled 1.8 trillion euro ($2.18
trillion) package as Poland and Hungary appeared to be edging
toward an agreement on the EU budget. = 0.8270 euros)