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* STOXX 600 index ends down 0.9 pct, down 7 pct year-to-date
* Lloyds leads fallers in weak bank sector
* Shell, Dialog down as earning updates disappoints
* But Neste touches record high on earnings beat
By Sudip Kar-Gupta and Danilo Masoni
LONDON/MILAN, July 28 (Reuters) - European shares fell onThursday with Lloyds leading a weaker financial sector lower anddisappointing earning updates from firms including oil majorRoyal Dutch Shell also weighing.
The pan-European STOXX 600 index fell 0.9 percent,while the FTSEurofirst 300 index slid 1 percent.
Lloyds fell 5.8 percent after the British bankwarned of a likely drop in demand caused by Britain's vote lastmonth to quit the European Union, adding that it wouldaccelerate cost-cutting.
Despite an unexpected second-quarter net profit, CreditSuisse fell 5 percent, reflecting the cautious notestruck by its CEO Tidjane Thiam, who is trying to turn aroundSwitzerland's second-biggest bank.
Even though the bank boosted its core capital to within itsown target, some analysts remain unconvinced.
"We believe Credit Suisse will still need to raise anotherround of capital next year," Bernstein, who rates the stock"underperform", said in a note.
Shell declined by 2.9 percent after it reported aprofit slump, while Dialog dropped 3 percent after theGerman supplier of Apple cut its 2016 sales outlook.
The STOXX 600 has rebounded by around 10 percent from a lowpoint reached on June 27 after the shock Brexit vote, but itremains down by around 7 percent so far in 2016.
Equity strategists at Credit Suisse said that many investorsremained pessimistic about European equities.
The bad debts of Italian banks remain a cause of concern,and the Credit Suisse strategists said Brexit had reawakenedfears among U.S clients over the euro zone, with valuations atlevels last seen during the Greek economic crisis of 2011.
"Outflows are close to record highs, valuations are back toGreek crisis lows on P/E relatives, yet earnings and economicmomentum are showing signs of relative stability," they wrote.
Roche Brune Asset Management fund manager Gregoire Lavernesaw some positive signs from the corporate results season.
Finnish refiner Neste surged 9.9 percent to arecord high after its second-quarter profit beat forecasts,while engineer Rolls Royce jumped 13.5 percent afterforecasting an improvement in profit.
"European companies are generally looking to be on the rightsort of path. Even if sales are not necessarily increasing,margins are increasing," said Laverne. (Reporting by Danilo Masoni; editing by Mark Heinrich)
Lloyds (LLOY)