UPDATE 1-European shares sink on fears of renewed U.S.-China trade war

European shares dropped broadly on Thursday as investors shunned risky assets while waiting to see whether United States and China can avoid a resumption of their trade war, which would damage the global economy.

The pan-European STOXX 600 index had dropped 0.8 percent by 0842 GMT, touching a fresh four-week low. U.S. President Donald Trump said on Wednesday that China "broke the deal" it had reached in trade talks with the United States, and vowed not to back down on imposing new tariffs on Chinese imports.

As the world's largest economies resume two-day trade talks on Thursday in Washington, investors were on the edge to see if a last minute truce could avert a sharp increase of tariffs on $200 billion worth of Chinese goods on Friday. Deutsche Bank's chief market strategist Jim Reid said it felt unlikely that either side could back down in the near term.

"Maybe over weeks but not over the next few days." More than seven major sectors lost above 1 percent. Tariff-sensitive auto stocks slid 1.7 percent while semiconductor stocks also lost ground.

Dialog Semiconductor's forecast of a recovery in demand failed to enthuse investors while Intel Corp's uninspiring full year outlook added to woes. Shares of luxury goods, heavily exposed to Chinese demand, also sold off with Paris-listed LVMH, Hermes and Gucci owner Kering down between 1.3 and 2.5 percent.

Losses in bank stocks weighed the most, with results from some of the biggest Italian banks in focus. Italy's third largest lender, Banco BPM dropped nearly 6 percent after a slide in revenues dragged down its profits.

Meanwhile, the country's biggest bank by assets UniCredit fell even after it reiterated its 2019 targets and posted a net profit above analyst expectations. Among the biggest decliners were shares of ArcelorMittal after the world's largest steelmaker cut demand forecast for its key markets and said it was facing the twin challenges of lower steel prices and reduced consumption in Europe.

German wholesaler Metro slid after reporting another quarter of falling sales at its Russian business and its Real hypermarkets, which the company is selling. Investors sought safety in defensive stocks such as telecom , utilities and real estate which eked out the smallest losses.

Defensive stocks were a bright spot. Italy's Leonardo and Germany's Rheinmetall were top performers on STOXX 600 after both companies confirmed their outlook. Another notable gainer was Swedish Match which posted a slightly bigger than expected rise in quarterly profit helped by U.S. sales growth. (Reporting by Medha Singh and Agamoni Ghosh in Bengaluru; Editing by Toby Chopra)

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