European shares end tumultuous week at six-month low

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Reuters

* STOXX 600 benchmark ends down 1.5 pct

* Euro zone volatility gauge hits post-Brexit peak

* European Q4 earnings growth forecast falls to 11 pct(Recasts, adds details, closing prices)

By Danilo Masoni

MILAN, Feb 9 (Reuters) - European shares fell to theirlowest level in almost six months on Friday after a rollercoaster week marred by a historic spike in volatility on worriesa comeback of inflation would speed a shift to tighter monetarypolicies.

Redemptions from European Equity funds reached 80-weekhighs, data from EPFR showed, while the pan-regional STOXX 600index ended at 368.61 points, down 1.5 percent on theday and 5 percent on the week, its worst week in 2 years.

"It has certainly been a chaotic trading week for the globalequity markets, amid fears of mounting inflationary pressuresand higher interest rates," FXTM analyst Lukman Otunuga said.

The euro zone volatility gauge rose on Friday to itshighest level since the Brexit vote before ending at 34.7points.

This week's sell-off followed a stronger-than-expected jobsreport in the U.S. earlier this month that fuelled worries overinflation and concerns the Federal Reserve will raise rates inthe world's largest economy at a faster pace than expected.

On Thursday the Bank of England said it was likely to raiseinterest rates sooner.

Investors are concerned that tighter monetary policies couldhit equities whose valuations have been boosted by years ofloose financial conditions. So far this year the pan-Europeanbenchmark is down 5.3 percent.

Banks, whose lending businesses benefit from risingrates, ended the week down 4.6 percent, in line with the broadermarket weakness following a strong start to the year.

"As rates begin to normalise (and that's what they aredoing) bank margins should begin to recover. So ... the banksrepresent an oasis of opportunity in a tumultuous market," saidRob James, financials analyst and manager at Old Mutual.

Citi strategists said in the medium term financials shoulddo well, keeping their overweight rating on the sector withintheir positive stance on cyclicals.

On Friday, Italian investment bank Mediobanca rose0.7 percent after it raised its dividend guidance and quarterlyprofit beat forecasts on higher net interest income and fees.

UBI Banca declined 0.4 percent as it planned tosell a "substantial package" of bad loans over the next threeyears in an acceleration of efforts to clean up its balancesheet.

Still among financials, French asset manager Amundilost 5.8 percent after publishing its annual resultsand new financial targets.

Energy shares fell as oil prices dropped for a sixth dayafter Iran announced plans to boost production and U.S. crudeoutput hit record highs.

The oil and gas index lost 1.9 percent with RoyalDutch Shell(RDS/A.NaE) and BP both down more than 2percent.

A.P. Moller-Maersk missed fourth-quarter profitexpectations and edged 0.3 percent lower.

Belgium's Umicore jumped 7.8 percent after raising892 million euros in equity for new investments in rechargeablebattery materials at a discount of only 2.7 percent toThursday's closing price.

Shares in French cosmetics group L'Oreal rose 0.3percent after its fourth-quarter sales beat expectations andcomments by its CEO regarding its intentions on Nestle'sstake further buoyed the stock.

According to Thomson Reuters I/B/E/S. European earningsgrowth forecasts for the fourth quarter have been revised to 11percent from nearly 18 percent a few months ago. Earning beatsso far have been below the 50 percent of the typical quarter.(Additional reporting by Julien Ponthus in London)