UPDATE 1-European shares dive after grim flash PMI surveys

European stock markets fell back on Friday after downbeat manufacturing data from Germany reignited fears of a recession in the region's biggest economy, erasing early gains on relief at the extension of Britain's Brexit deadline. The pan-European STOXX 600 index slipped for a third day, down 0.6 percent led by losses of almost 1 percent in Milan and Paris while Frankfurt and London indexes lost just over 0.5 percent.

The flash PMI survey of purchasing managers showed German manufacturing contracted further in March, registering its lowest reading since June 2013 and compounding fears that unresolved trade disputes are exacerbating a slowdown. The euro zone-wide flash PMI showed businesses also performed much worse than expected this month, while French business activity slowed unexpectedly.

Industrial goods and services stocks and automobiles and parts makers, all fell about 1 percent after the data and Siemens AG and Airbus SE were among the biggest weights on the STOXX 600. "With numerous headwinds facing the manufacturing sector in Germany – including a slowdown in the automotive sector, Brexit, U.S.-China trade and a global economic slowdown – there's little to be optimistic about," said Craig Erlam, senior market analyst at Oanda in London.

Most European bourses had opened on a stronger footing, relieved at the European Union's agreement to at least a two-week reprieve that precludes Britain crashing out of the bloc without a deal next week. The communique from Thursday's meeting of EU leaders kept the door open to a longer extension if Prime Minister Theresa May, as expected, fails at the third attempt to gain parliament's approval for her negotiated exit deal.

Shares in Deutsche Bank, up earlier this week on the prospect of a merger with Commerzbank, initially rose more than 2 percent after disclosures showed its board members received their first bonuses in four years. The bank's stock, however, was last down 0.3 percent as investors worried over banks exposure to defaults in another European downturn. The euro zone banking index after industrials was the heaviest weight on indexes, with Italian lenders among the hardest hit.

STILL PREPPING Retail shares squeezed out gains of 0.4 percent led by Tesco, while tech stocks fell back, after surging the previous day following surprisingly upbeat results from U.S. chipmaker Micron.

Adidas AG and Puma SE both gained after a disappointing quarterly report from rival Nike Inc which hinted at a slowing of the U.S. firm's momentum in its home market. Despite the relief from the summit overnight, there were more signs of firms making preparations for a no-deal Brexit, which could well have a depressive effect on Europe's major economies.

Goldman Sachs analysts reduced the likelihood of May's deal passing to just 50 percent, while raising the chances of "no-deal" to 15 percent. The bank continues to put the chances of no Brexit at all at 35 percent. The odds of a no-deal exit had fallen to just 5 percent on online betting market Betfair. (Reporting by Medha Singh and Patrick Graham; Editing by Hugh Lawson)