European shares sink on central bank policy concerns
* FTSEurofirst 300 down 1 pct, Euro STOXX 50 down 1.3 pct
* Robust U.S. data fuels worries of Fed tapering in December
* Lowered euro zone inflation expectations rattled investors
* Italian, Spanish banks hit as no fresh LTRO unveiled
PARIS, Dec 5 (Reuters) - European stocks sank on Thursday, hitting seven-week lows, as investors fretted about the risk of deflation in the euro zone while healthy U.S. economic data raised expectations the Federal Reserve could start reducing its stimulus.
The FTSEurofirst 300 index of top European shares lost 1 percent to 1,261.30 points, dropping for the fourth straight session. The index has lost 3.4 percent so far this week, on track to post its worst weekly performance since mid-June.
Italian and Spanish stocks - which have been outpacing the broader European market in the past five months - were among the most hit on Thursday, with BBVA down 2.6 percent, Banco Santander down 2 percent and Intesa SanPaolo down 3.4 percent.
Southern European banking stocks have recently been boosted by expectations of a fresh round of long-term loans, or LTROs, from the European Central Bank (ECB).
But at a policy meeting on Thursday, the ECB left interest rates unchanged and fell short of unveiling a new LTRO, while ECB President Mario Draghi said the risks to the region's economic outlook were skewed to the downside.
Investors were also rattled by fresh forecasts from ECB staff predicting that inflation would average just 1.1 percent next year and 1.3 percent in 2015 - well below the ECB's target of close to but below 2 percent.
"While deflation seems to be right around the corner, there are growing doubts about the ECB's willingness to act decisively to boost the economy. It's a question of credibility at this point," FXCM analyst Vincent Ganne said.
"A wave of profit-taking has just started in stocks. But the pullback shouldn't be too violent, except maybe if the Fed tapers later this month."
Also hitting sentiment, data showed on Thursday that U.S. gross domestic product grew at an annualised 3.6 percent in the last quarter, the strongest pace since the first quarter of 2012, and well ahead of the 3.0 percent growth expected by economists. Weekly U.S. jobless claims fell for the third consecutive week.
The figures raised expectations that the Fed could soon start winding down its monthly bond purchases, which have been fuelling the strong stock market rally in the past year.
"The rising prospect of tapering in December is prompting U.S. investors to repatriate some investments to the United States, and trimming positions on equities from around the world including Europe," said Christian Jimenez, fund manager and president of Diamant Bleu Gestion.
Around Europe, the UK's FTSE 100 index lost 0.2 percent, Germany's DAX index fell 0.6 percent and France's CAC 40 shed 1.2 percent. The euro zone's blue-chip Euro STOXX 50 index lost 1.3 percent, to 2,953.17 points.
Shares in Vienna Insurance Group fell 5.2 percent following a placement of 2.29 million shares, representing a 1.8 percent stake in the company.
Bucking the trend, Germany's Merck rose 4.9 percent after unveiling a takeover offer for Britain's AZ Electronic Materials for about 1.6 billion pounds ($2.61 billion), as it seeks to expand its range of specialist chemicals for hi-tech gadgets.
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