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* STOXX up 0.2% on the week after Friday's slide
* Travel stocks slump as EU proposes travel curbs
* Euro zone business activity shrinks in Jan
(Updates to market close)
By Sruthi Shankar and Amal S
Jan 22 (Reuters) - European stocks ended lower on Friday,
closing out another lacklustre week as business activity in the
euro zone shrank in January after stringent lockdowns to control
the coronavirus pandemic shuttered many businesses.
The pan-European STOXX 600 index fell 0.6%, but
clung to a small 0.2% rise for a week, dominated by hopes for
massive U.S. stimulus under President Joe Biden.
Travel and leisure stocks fell 2.5%, leading
declines among sectors amid concerns over fresh travel
restrictions in Europe. Other economically sensitive sectors
like banks, oil & gas and mining shed
more than 1%.
IHS Markit's flash composite Purchasing Mangers' Index (PMI)
for the euro zone fell further below the 50 mark separating
growth from contraction, hitting 47.5 in January from December's
49.1.
The bloc's dominant service industry was hit hard with
hospitality and entertainment venues forced to remain closed,
but manufacturing remained strong as factories largely stayed
open.
The auto-heavy German DAX fell 0.2%, France's CAC
40 dropped 0.6%, and euro zone stocks were
down 0.6%.
The sealing of a post-Brexit trade deal, unprecedented
stimulus measures from central banks and governments, and hopes
that COVID-19 vaccines will spur a faster economic rebound drove
the STOXX 600 to a near 11-month high this week.
"There is quite a big discussion in the market on whether
the consensus is too bullish, or if we need to have a pullback,"
said Graham Secker, chief European equity strategist at Morgan
Stanley.
"I think this is more about the fact the markets had a
strong run over the past few months. Maybe it gives people an
excuse for some profit-taking.
"While the long-term narrative is intact, the market tends
to give the benefit of doubt."
A European Central Bank survey showed the euro zone economy
is likely to rebound this year - but at a slower pace than
expected only a few months ago - before making up the lost
ground in 2022.
Germany's Lufthansa, Air France and
British Airways-owner IAG fell between 2.5% and 3.4%,
while holiday group TUI tumbled 17.2% after the
European Union proposed to label hotspots of COVID-19 infections
as "dark red" zones.
Travellers from those areas will have to take a test before
departure and undergo quarantine.
The UK's FTSE 100 fell 0.3% and midcap stocks
slid 1.0% after Britain's retail sales marked a weak end
to their worst year on record in December, while business
activity contracted sharply in the latest month.
Italian stocks fell 1.5% after the country's main
ruling parties flagged snap elections as the only way out of its
political impasse if Prime Minister Giuseppe Conte fails to drum
up a parliamentary majority after scraping through a confidence
vote this week.
Helping limit losses in Germany's DAX, engineering group
Siemens AG jumped 7.3% on stronger-than-expected
preliminary results for its first quarter.
The world's largest carmaker Volkswagen rose
1.9% as a rebound in premium car sales in China and stronger
fourth-quarter deliveries helped keep it in the black last year,
though its profit almost halved due to the impact of the
pandemic.
(Reporting by Sruthi Shankar and Amal S in Bengaluru; Editing
by Arun Koyyur and Jan Harvey)
