* STOXX 600 down 0.5 pct, weighed down by banks
* But index set for weekly gain on M&A, earnings, Trumpboost
* Swiss bank UBS drops after underwhelming results
* But Tesco rallies on Booker acquisition deal
* Solid updates buoy LVMH, Wartsila (ADVISORY- Follow European and UK stock markets in real time onthe Reuters Live Markets blog on Eikon - see cpurl://apps.cp./cms/?pageId=livemarkets) Adds details, updates prices)
By Danilo Masoni
MILAN, Jan 27 (Reuters) - European shares pulled back onFriday with UBS dragging bank stocks lower afterposting a drop in full-year profit, while Britain's biggestsupermarket Tesco surged after a 3.7 billion-pound takeover of asupplier.
The pan-European STOXX 600 index was down 0.5percent while UK's FTSE was flat, supported by Tesco, which rose 8.4 percent after agreeing to buy wholesalesupplier Booker in a deal that cements its dominantposition in the UK.
Booker shares hit a record high and were the top STOXXgainer, up more than 15 percent.
"At first glance Tesco's merger with Booker makes perfectsense. Tie up the end-to-end wholesale/retail business and makesavings in the process," said ETX Capital analyst Neil Wilson.
Investors also cheered to news that the UK supermarketexpects to restart paying dividends again.
UBS fell 3.4 percent. The world's biggest wealthmanager posted a 47 percent fall in 2016 net profit but struck amore optimistic tone for 2017 as its fourth-quarter net profitcame in well ahead market expectations.
Baader Helvea analyst Tomasz Grzelak said UBS delivered asolid update thanks to very a strong investment banking resultsbut outflows at its wealth management operations disappointed.
"Considering that the ... negatives are to be seen asphasing out in 2017, the results support our buy rating," headded.
Losses in UBS helped drag Europe's bank index down1.4 percent, making it the biggest sectoral faller in Europe.
Elsewhere in the sector, UniCredit fell 4.4percent after a report said the Italian lender may start itsmulti-billion-euro capital hike on Feb. 6.
In spite of Friday's weakness, the STOXX 600 remains closeto its highest in more than one year and set to end the weekwith a gain of around 1 percent. The surge reflects support from merger and acquisition activity, optimism over U.S. PresidentDonald Trump's growth-boosting policies and a good start to theearning season.
According to JP Morgan, 59 percent of the STOXX companiesthat have reported so far beat earning per share estimates ,with growth running at 11 percent year-on-year, while more thantwo thirds beat revenues forecasts.
There were more good earning updates on Friday.
Shares in LVMH rose 1 percent to approach recordhighs after the world's biggest luxury group posted aforecast-beating rise in 2016 results, while Finnish ship engineand power plant maker Wartsila climbed 7 percent,also buoyed by stronger than expected results.
Among outstanding losers was online lottery firm ZealNetwork. Its shares tumbled 22 percent with tradersciting disappointed over its dividend plans and abelow-consensus guidance. (Reporting by Danilo Masoni)
