Disappointing Fed drags European shares back to 2016 levels

Single dollar bills mashed up with U.S. flag

* STOXX 600 down 1.4 pct

* Airbus falls on probe report

* Norsk Hydro down as U.S. lifts Rusal sanctions

* Miners lead sectoral fallers (Adds Airbus, closing prices)

By Danilo Masoni

MILAN, Dec 20 (Reuters) - A disappointing rate outlook fromthe U.S. Federal Reserve dragged European shares down sharply onThursday, with several benchmark indexes hitting two-year lowson worries tighter monetary conditions could weigh on sluggisheconomic growth.

The pan-European STOXX 600 .STOXX index closed down 1.4 percent, so did Germany's DAX .GDAXI while France's CAC .FCHI indexes fell 1.7 percent.

Wall Street also opened in negative territory and the S&P500 .SPX and the Nasdaq .NDX were down 1.4 percent and 1.8percent respectively at the time of the bell in Europe.

After raising interest rates for the fourth time this year,the Fed signalled "some further gradual" rate hikes ahead,disappointing market expectations of a more dovish message fromthe world largest economy's central bank.

"Concerns in the U.S. about the real estate sector andleveraged loans remain. It's clear that interest rates cannotcontinue to rise for long without having important consequencesfor economic growth," said Edoardo Fusco Femiano, market analystat brokerage eToro.

The selloff in Europe was broad-based with all sectorstrading in the red but cyclical sectors such as miners .SXPP ,tech .SX8P and banks .SX7P led the steep falls, down 2.7percent, 2.6 percent and 2.4 percent respectively.

Worries over a slowing global economy, a trade spat betweenWashington and Beijing, and political instability have all beenweighing on prospects for earnings growth at European companies.

The STOXX 600 is set for its worst yearly performance since2008, having fallen 13.5 percent year-to-date.

The DAX, which is heavily exposed to China, was down 17.9percent year-to-date, while Brexit-hit FTSE was down 12.7percent. Italian stocks .FTMIB were also off about 15 percent,weighed down by concerns over the country's public finances.

After a strong 2017, analysts have been cutting theirforecasts for euro zone 2018 earnings growth steadily throughoutthe year. They now expect a growth of around 4.4 percent, downfrom a peak of 10 percent at the start of the year.

Estimates for 2019 have also been cut.

Among individual movers on Thursday, shares in Airbus AIR.PA fell 4.4 percent after the Le Monde newspaper reportedthe United States had opened an investigation into allegationsof corruption, raising the stakes of probes already under way inBritain and France.

Shares in aluminium company Norsk HydroNHY.OL fell nearly3.5 percent and was among the top fallers in Europe after theUnited States said it would lift sanctions against itscompetitor Rusal.

Danilo.Masoni@TR.com danilo.masoni.thomsonreuters.com@reuters.net https://twitter.com/damasoni

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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