European shares retreat as weaker airlines offset firmer banks

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* Airlines slump as Lufthansa issues profit warning

* STOXX 600 index down 7.3 pct so far in 2016

* ECB keeps rates unchanged at record lows

* But Draghi comments give boost to euro zone bank stocks

By Kit Rees and Sudip Kar-Gupta

LONDON, July 21 (Reuters) - European stocks edged lower on Thursday, as a drop in the shares of major airlines offset gains in some banks, propped up by signals of support for the sector from the European Central Bank.

The pan-European STOXX 600 index and similar FTSEurofirst 300 both closed 0.1 percent lower.

Airline stocks fell amid fears some consumers may avoid travelling abroad for holidays after last week's attack in Nice (Milan: NICE.MI - news) , for which militant group Islamic State claimed responsibility, and attempted coup in Turkey.

Lufthansa slid 6 percent after issuing a profit warning. Air France-KLM (Shanghai: 600686.SS - news) fell 4.1 percent and easyJet dropped 5.3 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 fund management and consultancy firm Prime Partners.

Euro zone bank stocks rose as the ECB, which kept interest rates on hold at a policy meeting on Thursday, signalled its intent to address some of the problems in the sector, which has slumped 27 percent in 2016..

ECB President Mario Draghi said a state-funded backstop may be part of the solution to managing the problem of high levels of bad loans in the banking system.

"He said they need to tackle non-performing loans, which has helped bank stocks a bit, but it's still not much in terms of concrete measures," said Clairinvest fund manager Ion-Marc Valahu.

The STOXX 600 is up more than 10 percent from a low reached in late June after markets slumped in the aftermath of Britain's vote to leave the European Union, but 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 has put more pressure on European bank stocks.

"I'd find it hard to justify buying the markets at these current levels," said Richard Griffiths, associate director at Berkeley Futures. (Editing by Catherine Evans and John Stonestreet)