* STOXX 600 down 0.3 pct, weighed down by banks
* Swiss bank UBS drops after underwhelming results
* Tesco rallies on Booker acquisition
* Index posts weekly gain on M&A, earnings, Trump boost (Updates prices at close)
By Kit Rees and 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 dealto buy a supplier.
The pan-European STOXX 600 index was down 0.3percent at its close, while the UK's FTSE 100 rose 0.3percent, supported by Tesco, which soared 9.3 percentafter agreeing to buy wholesale supplier Booker in adeal that cements its dominant position in the UK.
Booker shares hit a record high and were the top STOXXgainer, up almost 16 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 the news that the UK supermarketexpects to restart paying dividends again.
UBS, however, fell 4.5 percent. The world's biggestwealth manager posted a 47 percent fall in 2016 net profit butstruck a more optimistic tone for 2017 as its fourth-quarter netprofit came in well ahead of market expectations.
Baader Helvea analyst Tomasz Grzelak said UBS delivered asolid update thanks to very strong investment banking results,but 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 down0.8 percent, to be among the weakest sectors.
UniCredit fell 5.2 percent after a report said theItalian lender may start its multi-billion-euro capital hike onFeb. 6.
In spite of Friday's weakness, the STOXX 600 remains closeto its highest level in more than one year and ended 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 theearnings season.
According to JP Morgan, 59 percent of the STOXX companiesthat have reported so far beat earnings per share estimates,with growth running at 11 percent year-on-year, while more thantwo thirds beat revenue forecasts.
Among other positive updates on Friday, Finnish ship engineand power plant maker Wartsila climbed 7.2 percent,buoyed by stronger than expected results.
Among the biggest losers of the day was online lottery firmZeal Network. Its shares tumbled more than 24 percentwith traders citing disappointment over its dividend plans and abelow-consensus guidance. (Reporting by Kit Rees and Danilo Masoni; Editing by ElaineHardcastle)