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* STOXX 600 down 0.4 pct, down 7 percent year to date
* Commerzbank leads banks lower
* Mediaset slumps after Vivendi backtracks on pay-TV deal
* BP falls after results in a weak oil sector
* But strong results lift Faurecia, AMS, UPM
By Danilo Masoni
MILAN, July 26 (Reuters) - European shares fell slightly on Tuesday as weaker bank and oil sectors weighed, with Commerzbank among the biggest fallers after the German lender disappointed with a decline in second-quarter core capital.
The pan-European STOXX 600 index was down 0.4 percent to 339.5 points by 0827 GMT. The index had touched a one-month high in the previous session but was still down more than 7 percent so far this year.
Small moves on the benchmark indices masked bigger price swings in underlying stocks as earnings season got underway.
Commerzbank shares fell more than 6 percent after reporting that its second-quarter operating profit and capital cushion fell, hit by pension liabilities and Italian sovereign debt exposure.
But Equinet analysts affirmed its buy rating, saying capital worries were overdone and the stock valuation was low.
“Commerzbank has successfully restructured its business in recent years and we see the bank well on its return to normality. Key problem remains the bank’s low profitability,” Equinet said in a note.
Europe’s bank index fell 1.5 percent, the sector with the biggest fall as investors were cautious ahead of Friday’s release of European-wide stress tests.
Banks have been the worst sectoral performer this year due to concerns over capital being squeezed by margin pressure caused by ultra low interest rates.
Among the top losers in the sector were Monte dei Paschi di Siena, Deutsch Bank and UniCredit, all down between 4 and 7.8 percent.
BP fell 2.9 percent in a weak oil sector after the British oil major missed second-quarter earning expectations due to weak refining margins and oil prices, prompting another cut to its 2016 investment budget.
Mediaset fell 12 percent to touch a five-month low after the Italian broadcaster said French media group Vivendi no longer wanted to buy its entire pay-TV unit, unexpectedly proposing an alternative deal.
Among the outperformers, French car parts supplier Faurecia rose 4 percent after it raised its 2016 outlook; chip maker AMS gained 6 percent following a strong earnings report, while Finnish paper producer UPM-Kymmene was up 3.7 percent after its quarterly earnings beat expectations.
Goldman Sachs said the earnings season had started with moderate positive surprises in the sectors of industrial goods and services and in basic resources. Real estate, personal and household goods, and telecoms were the worst three performers, it said.
About one fifth of STOXX 600 companies have reported their results so far and by the end of the week more than half will have done so, Goldman said . (Editing by Raissa Kasolowsky)