UPDATE 2-European shares fall, scorched by China rare earth warning

* STOXX 600 records more than 3-month closing low
* All sub-indexes down; retailers, tech stocks hit worst
* German unemployment rises unexpectedly in May

(Updates to close, recasts, adds market strategist's quote)
By Aaron Saldanha
May 29 (Reuters) - European shares slid on Wednesday as
Chinese newspapers warned it could squeeze its supply of rare
earth elements to hit the United States, sending jitters through
the markets and prompting investors to flee for safer ground.
While China has so far not explicitly said it would restrict
the sales, Chinese media strongly implied this will happen, in a
move that would escalate tensions between the world's two
largest economies. Rare earth elements' uses include rechargeable batteries for
electric and hybrid cars, computers, wind turbines and lighting.
The pan-European STOXX 600 index .STOXX tumbled 1.4% to a
more than three-month closing low, with each sub-sector falling.
"Trade tensions have certainty gone up a notch, and
investors are running for the hills," David Madden, market
analyst at CMC Markets UK, wrote in a note.
"European markets have also to contend with the rising
political tensions between Italy the EU ... investors fear the
political fight could trigger a debt and banking crisis in
Italy."
Italian equities .FTMIB shed 1.3% on the day. The
country's banks .FTIT8300 have been under pressure this week,
during which time yields on the Italian sovereign's debt have
broadly risen against the backdrop of a possible 3 billion euro
fine on Italy by the European Commission for breaking EU rules.
Frankfurt's trade-sensitive DAX .GDAXI fell 1.6% to its
lowest close in nearly two months. Data showed German
unemployment rose unexpectedly in May for the first time in
nearly two years, in a sign that a slowdown in the euro zone's
top economy is spilling over into the labour market.
French stocks .FCHI shed 1.7%, while their London-traded
peers .FTSE fell 1.2%. .L
Technology stocks .SX8P fell 2.2%, underperforming most
other STOXX 600 sub-indexes. The sector would be more exposed
than most to any supply squeeze of rare earths from China, which
is home to most reserves.
Oil and gas stocks .SXEP dropped 1.7%, with wind turbine
maker Vestas Wind Systems VWS.CO sliding 4.2%.
The retailers sub-index .SXRP posted the steepest losses
on the STOXX 600, with Casino Group CASP.PA falling 4% after
the indebted French supermarket cancelled its interim dividend
and suffered a new credit ratings downgrade. Market researcher Kantar said Britain's "Big Four"
supermarkets all lost market share in the 12 weeks to May 19,
sending Tesco TSCO.L shares 5.2% lower, while those of
Sainsbury's SBRY.L dipped 0.2%.
Basic resources stocks .SXPP shed 2%, with ArcelorMittal
MT.AS diving 4.2% as the world's top steel maker announced
plans to cut its output in Europe. Athens-traded stocks .ATG dipped 0.2% but held near a more
than one-year closing peak clocked on Tuesday.

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Refinitiv estimates of European vs U.S. earnings growth https://tmsnrt.rs/2I5dKFH
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