Last checked at 
* Pan-European STOXX index down 0.5 percent
* Ericcson slumps after profit warning
* Airline Lufthansa lifted by upgrade
* Citi says Italian banks' asset quality improving (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 closing prices, details)
By Kit Rees and Danilo Masoni
LONDON/MILAN, Oct 12 (Reuters) - European stock markets fellslightly on Wednesday with Sweden's Ericsson slumpingto eight-year lows after issuing a profit warning.
The STOXX 600 index fell 0.5 percent, losing groundfor the second straight session. So far this year the index isdown 7.4 percent.
Germany's DAX also fell 0.5 pct, while Britain'sblue-chip FTSE 100 index and the FTSE 250 mid-cap index< .FTMC> both dropped around 0.7 percent.
Telecoms equipment maker Ericsson dropped 20 percent to itslowest point since 2008 after warning that its third-quarterprofit would be "significantly lower" than expected after adownturn in its mobile broadband business had accelerated.
The world's biggest maker of mobile network equipmentreported a 94 percent plunge in quarterly operating profit andtumbling sales at its core networks division.
"They're near the bottom of the pile in terms of mobile now,in the age of Apple and Samsung, Ericsson don't really have alook-in," Jonathan Roy, advisory investment manager at CharlesHanover Investments, said.
"They haven't really come up with any new or excitingproducts, so I wouldn't be surprised to see them go furtherdown."
Peer Nokia also dropped, down 5.1 percent, setfor its biggest daily loss since June 27.
Among the top risers, however, Deutsche Lufthansa gained 4.3 percent after an upgrade from Kepler Cheuvreux.
UK staffing firm PageGroup extended its gains fromthe previous session, up 3.3 percent following a spate of targetprice upgrades. The company reported a set of better thanexpected results in the previous session.
"Trading in the third quarter was better than expected asdemand in the UK held up better than feared," analysts atBarclays said, adding that they expected a more gradual declinein demand over 2017 and 2018.
Italian lenders outperformed a flat bank sector, with UBIBanca, Banco Popolare and UniCredit up between 2.4 and 6 percent, after an upbeat note from Citi.
"Asset quality is starting to recover and the main sectorissues are well-known and reflected in current low valuation,due to fear on system stability," Citi said in a note.
Italian banks have been among the worst performers in theirsector this year on concerns over capital shortfalls and amountain of bad loans. (Editing by Sudip Kar-Gupta and Dominic Evans)
