European shares decline as airline stocks slump

(ADVISORY- Follow European and UK stock markets in real time on the Reuters Live Markets blog on Eikon - see cpurl://apps.cp./cms/?pageId=livemarkets)

* Airlines slump as Lufthansa issues profit warning

* STOXX 600 index down around 7 pct so far in 2016

* ECB keeps rates unchanged at record lows

By Sudip Kar-Gupta

LONDON, July 21 (Reuters) - European stocks fell on Thursday, weighed down by a drop in the shares of major airlines after Lufthansa issued a profit warning.

The pan-European STOXX 600 index and the similar FTSEurofirst 300 were both down by 0.3 percent, hovering near session lows, after the European Central Bank (ECB) kept interest rates on hold at record lows.

The ECB added it still expects its key interest rates to remain at present or lower levels for an extended period of time and well past the horizon of its net asset purchases.

It also said its 80 billion-euro per month asset purchase programme would run until the end of March 2017, or beyond if necessary, and until it saw sustained gains in inflation towards the ECB target of close to but below 2 percent annually.

Airline stocks fell amid fears that consumers may avoid travelling abroad for holidays after last week’s attack in Nice, for which militant group Islamic State has claimed responsibility, and the attempted coup in Turkey.

Lufthansa slid 7.2 percent after issuing a profit warning. Air France-KLM fell 4.6 percent, and easyJet dropped 6.2 percent after posting lower revenues.

“The airline sector is under pressure. We don’t own any airline stocks for now and we prefer the tech and healthcare sector,” said Francois Savary, chief investment officer at Geneva-based fund management and consultancy firm Prime Partners.

Savary pointed to Temenos’s results as extending this week’s gains by European technology stocks. Shares in SAP rose its results and ARM surged after a takeover from Softbank.

Swiss software group Temenos climbed 5.8 percent after the company reported forecast-beating interim results.

Savary also backed holding healthcare stocks such as Roche , which edged up after its interim results, as offering good “defensive” protection via their solid dividends and profits in the current uncertain market climate.

While the STOXX 600 is up around 10 percent from a low point reached in late June after markets slumped in the immediate aftermath of Britain’s shock vote to leave the European Union, the index remains down 7 percent since the start of 2016.

Last month’s Brexit vote has added to market uncertainty and is expected to affect the British and European economies, which in turn could put more pressure on the ECB to find ways to prop up euro zone markets and the region’s economy.

“I’d find it hard to justify buying the markets at these current levels,” said Richard Griffiths, associate director at Berkeley Futures. (Editing by Larry Kiong)