UPDATE 2-European stocks slide in risk-off mood, M&A talk lifts Italian banks

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* UK stocks lag after new job protection plan underwhelms
* German, French business morale improves in Sept
* Italian banking stocks surge 1.3%

(Updates to market close)
By Sruthi Shankar
Sept 24 (Reuters) - European stocks slid on Thursday, with
UK markets leading the way after Britain's government launched a
scaled-back job support programme, while a second wave of
COVID-19 cases across the continent dampened investor sentiment.
The pan-European STOXX 600 index .STOXX fell 1.0% to close
at its lowest level since Aug 3, with the retail .SXRP , oil &
gas .SXEP and financial services .SXFP sectors falling the
most.
Investor fears about the resurgence of COVID-19 denting the
European economic recovery have dominated trading this week as
the UK, Spain and France imposed fresh restrictions, while U.S.
Federal Reserve policymakers spooked markets on Wednesday by
calling on the government to provide more fiscal support.
"Investor's expectations for a slow steady recovery have
been tested in this month," Geir Lode, head of global equities,
international at Federated Hermes wrote in a note.
"With the recent sentiment change in the market, it should
be remembered that market volatility still exists. Exceptionally
low interest rates and ample liquidity give investors few
choices other than to invest in riskier assets."
M&A speculation drove a 1.3% rise in Italian banking stocks
.FTIT8300 , while the European banking index .SX7P slipped
0.4%.
Italy's third-largest bank Banco BPM BAMI.MI jumped 5.8%
and Credito Valtellinese PCVI.MI surged 11.6%, with traders
citing a Bloomberg report that suggested talks of possible
takeover interest from French bank Credit Agricole CAGR.PA .
Earlier, a Banco BPM spokeswoman said it was not in contact
with bigger rival UniCredit CRDI.MI over a potential merger,
dismissing a press report. UniCredit rose 2.3%.
The STOXX 600 had cut losses earlier in the session after
surveys showed business morale in Germany and France improved
for the fifth month in a row in September, suggesting that both
countries are set for strong growth in the third quarter.
The relief, however, proved temporary, with U.S. markets
hesitating to rise after a surprise rise in weekly jobless
claims. .N
The German DAX .GDAXI was down 0.3%, outperforming the
regional indexes, while France's CAC 40 .FCHI fell 0.8%.
UK's FTSE 100 .FTSE lagged with a 1.3% drop, failing to
draw cheer from a new job support plan. Under the "more
targeted" programme, Finance minister Rishi Sunak said
government support would only be available to workers whose
employers keep them on at least a third of their normal hours.
British cinema operator Cineworld CINE.L slumped 14.8% as
it swung to a loss and said it may have to raise more money if
pushed to shut its theatres again due to government curbs on
social gathering.