UPDATE 2-European stocks hit by U.S.-China tensions, recovery doubt

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* Euro zone contraction eased in May but still sharp - PMI
* Lufthansa in talks for state rescue deal, shares jump
* Sweden, Denmark, Norway markets closed

(Updates to market close)
By Sruthi Shankar
May 21 (Reuters) - European shares fell on Thursday, as
signs of worsening U.S.-China relations added to concerns over
the pace of recovery from the coronavirus-led economic downturn.
The pan-European STOXX 600 .STOXX ended 0.8% lower in a
volatile session, with trade-sensitive German .GDAXI and
French .FCHI indexes falling more than 1% each.
Ties between China and the United States have soured as
Washington accused Beijing of mishandling the coronavirus
outbreak, stalling a market recovery in recent weeks.
U.S. Secretary of State Mike Pompeo took fresh aim at China
on Wednesday, calling the $2 billion it has pledged to fight the
pandemic "paltry". A Beijing official said China will not flinch
in the face of rising tensions. Meanwhile, a survey released earlier showed the pandemic's
devastating effect on the euro zone economy abated a little in
May as lockdowns were eased, but was still a long way from
marking growth. After hitting rock bottom in April, IHS Markit's Flash
Composite Purchasing Managers' index recovered to 30.5 from
April's 13.6, but was still far below the 50 mark separating
growth from contraction.
"We believe markets are priced to perfection on the
expectation that there is only smooth sailing," strategists at
Cantor Fitzgerald wrote in a note.
"Should (COVID-19) cases remerge, it will remind investors
that the path back to growth will be slow and bumpy. Add to that
the National Congress meeting in China amid boiling U.S.-China
tensions."
Stock markets globally have made headway this week, with
optimism over easing of lockdowns and talks of more stimulus for
the battered euro zone pushing the STOXX 600 to its strongest
close in three weeks on Wednesday.
However, banks .SX7P , oil & gas .SEP and technology
companies .SX8P were the biggest drags on the index on
Thursday as risk appetite took a hit.
Amsterdam-based telecoms and cable group Altice Europe NV
ATCA.AS slumped 13.8% after posting a worse-than-expected
first-quarter core profit. Premier Inn owner Whitbread Plc WTB.L tumbled 13.4% after
it said it would seek 1.01 billion pounds ($1.2 billion) in
fresh cash from shareholders to help weather the COVID-19
crisis. Airline stocks found relief as Lufthansa LHAG.DE rose 2.7%
amid talks with the German government over a rescue deal worth
up to 9 billion euros ($9.9 billion), including the state taking
a 20% stake. British low-cost airline easyJet EZJ.L gained 4.4% after
saying it would restart a small number of flights on June 15.