UPDATE 2-European stocks close down as London lags, banks shine

* London shares weak as pound strengthens
* Upbeat export data helps Germany rise
* Banking shares rally ahead of ECB meeting

(Updates to close)
By Sruthi Shankar
Sept 9 (Reuters) - European stocks finished lower on Monday
as Britain's export-heavy FTSE index tumbled due to a stronger
pound, while selling in defensive sectors such as healthcare and
utilities dented early gains in markets.
After rising as much as 0.2% after a surprise rise in German
exports and hopes of stimulus from the European Central Bank
later this week, the pan-European STOXX 600 index .STOXX gave
up gains as the day wore on.
The index closed down 0.3%, ending a three-day run of gains,
as internationally focused shares of the FTSE 100 .FTSE
dropped 0.6% following gains for the pound on optimism that
Britain will not crash out of the European Union without a deal.
However, investors were mostly looking ahead to the ECB's
policy meeting on Thursday, when the central bank is expected to
introduce a new wave of monetary stimulus. Europe's banking index .SX7P , the worst performer this
year among major subsectors, rose 2.2% to hit more than a
one-month high.
The index has recovered from near 8-year lows hit in
mid-August amid a broad recovery on hopes of a resolution to the
U.S.-China trade dispute and in the past weeks, as investors
tempered expectations of aggressive easing measures from the
ECB.
"Rhetoric from ECB speakers suggests that markets may be
overestimating the size of a QE package and the ECB may
underwhelm on the size of asset purchases, while simultaneously
cutting front-end rates," Morgan Stanley analysts wrote in a
client note.
"For economies where the financing is largely provided by
the banking system, a steeper curve helps to facilitate the
provision of credit. In order to stimulate growth, the ECB is
unlikely to be pleased with another reversal."
Banking-heavy indexes of Milan .FTMIB and Madrid .IBEX
rose about 0.2%, with Santander's shares SAN.MC gaining 2.4%
after the Spanish bank said it would raise its ownership of its
Mexican business to 91.65% from 74.96% after a stock exchange
offer. Automakers .SXAP , meanwhile, jumped 2% after upbeat German
export data in July, while dimming chances of a no-deal Brexit
helped Germany's carmakers, whose key destination is Britain.
Also helping Frankfurt-listed shares .GDAXI close 0.3%
higher, a report said Germany was considering the creation of a
"shadow budget" that would enable Berlin to boost public
investment beyond the restrictions of constitutionally enshrined
debt rules, sources told Reuters. On the other end, shares of defensive sectors including
healthcare .SXDP , food and beverage .SX3P and utilities
.SX6P , which have enjoyed a strong run-up this year, fell
about 1.7%, weighing on the STOXX 600.
Shares in Air France AIRF.PA slid 10% to the bottom of the
index after disappointing August numbers, while IAG ICAG.L
fell 1.5% as British Airways pilots began a 48-hour strike.
Together, the stocks drove the travel and leisure sector .SXTP
down 0.5%.