Brexit deal defeat boosts European banks, hurts FTSE 100 as endgame still unclear
* UK parliament deals crushing blow to Brexit deal
* FTSE 100 down 0.6 pct, STOXXE flat
* Bank shares jump, led by Italy
* UK housebuilders climb on hopes no-deal Brexit less likely (Updates prices, adds details, quotes, graphic)
By Helen Reid
LONDON, Jan 16 (Reuters) - British shares lagged Europe onWednesday after Prime Minister Theresa May's resounding defeatin a parliamentary vote on her Brexit deal, but in the face ofunrelenting political uncertainty investors shifted their focusto results and M&A news.
A defeat had largely been priced in already, though themagnitude of the loss - a margin of 230 - came as a surprise.
Analysts and investors interpreted the outcome as a positivefor the market, making a "softer, later" Brexit more likely, butuncertainty ahead of a no confidence vote in May's government onWednesday evening kept trading muted.
"There's still quite a lot of uncertainty...a hard exit is alower probability risk than it was but I don't think we cancompletely discount it," said Caroline Simmons, deputy head ofthe UK investment office for UBS Global Wealth Management.
The FTSE 100 .FTSE was down 0.6 percent by 0930 GMT whileeuro zone stocks .STOXXE held flat and Germany's DAX .GDAXI edged down 0.2 percent.
The top British index was dragged down by multinationalexporter stocks like Unilever ULVR.L and DiageoDGE.L , whichmake the lion's share of their earnings in foreign currenciesand are bruised by sterling rising.
Bank shares .SX7P were the biggest boost to Europeanindexes, up 0.9 percent as investors bet that a disruptiveno-deal Brexit was less likely after the parliamentary vote.
BNP ParibasBNPP.PA , AXA AXAF.PA and Intesa SanpaoloISP.MI were the top three boosts to Europe's STOXX 600 .STOXX , but the gains remained unconvincing with the endgameto Brexit still clear as mud.
"Unfortunately, everything remains possible: new elections,an extension of the deadline for Article 50, or even a secondreferendum," said Stefan Kreuzkamp, chief investment officer atDWS.
Italian banks rallied, led by UnicreditCRDI.MI , havingslumped in the previous session on fears the European CentralBank may require full coverage of non-performing loans by 2026.
They helped Italy's FTSE MIB .FTMIB rise 0.5 percent,outperforming peers, after Unicredit said it considers itsnon-performing exposure (NPE) coverage "fully adequate".
The Brexit vote defeat drove UK domestic stocks up asinvestors grew more optimistic about the prospects for sectorsseen as highly vulnerable to a no-deal Brexit.
UK housebuilders Persimmon PSN.L , Taylor WimpeyTW.L ,Barratt DevelopmentsBDEV.L , and Berkeley GroupBKGH.L wereamong the top European gainers, up 2.1 to 3 percent.
"If you look at domestic UK stocks, some of their valuationshave been pushed back to blood-on-the-street type valuations,"said Dominic Wallington, head of European equity at RBC GlobalAsset Management.
"There's real insurance in some of these valuations, that Ithink is remarkable."
Overall Britain's FTSE 100 is trading at a much lowervaluation than peers.
Elsewhere in Europe results and dealmaking news drove moveswith stocks shrugging off the night's political developments.
Danish freight company DSV DSV.CO climbed 4 percent afterit made a bid for Swiss logistics company PanalpinaPWTN.S valuing the company at $4.1 billion.
Panalpina shares soared 27.7 percent after the bid which, at170 Swiss francs per share, represents a 24 percent premium tothe stock's closing price on Tuesday.
"We can see the strategic logic for DSV, as the deal wouldgive them a large opportunity to scale their process and ITcapabilities. But a deal of this magnitude will not be withoutrisk," wrote Bernstein transport analyst Daniel Roeska.
Pearson PSON.L shares tumbled 5.3 percent, the biggestEuropean fallers, after the British education publisher said itexpects one-off restructuring costs to rise to around 330million pounds, ahead of its original 300 million pound plan.
Norwegian aluminium maker Norsk HydroNHY.OL rose 4.9percent after it said Brazil's northern state of Para lifted aproduction embargo on its Alunorte alumina refinery.Helen.Reid@thomsonreuters.com
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