BUZZ-Shire, AstraZeneca bearing the brunt as new U.S. tax rules bite

** European pharma stocks, the best performing regional sub-sector this year, retreats from record high & is the biggest underperformer on Monday following new U.S. Treasury rules around tax inversion deals.

** Weakness led by the UK majors.

** Shire (LSE: SHP.L - news) , the best performing stock on the STOXX 600 this year, bearing the brunt & is off 6.2%. Stock is still up about 70% this year.

** AstraZeneca (NYSE: AZN - news) down 4.6%. The drop in Shire & AstraZeneca wipes out about $7.5 billion in their combined market value.

** Trading volumes were relatively healthy on Shire & AstraZeneca with about a third of the stock's daily average traded in the first 10 minutes.

** Prospects of M&A has put a floor under pharma valuations and lifted the sector to the top of the year-to-date performance tables in the region. Chart: http://link.reuters.com/cyc92w

** Chart on corporate inversions: http://reut.rs/1tWc9p7

** Smith & Nephew (LSE: SN.L - news) down 3.6% while Actelion off 1.8%. Broader sector down 1.2 pct. (RM (LSE: RM.L - news) : vikram.subhedar.thomsonreuters.com@reuters.net)