German and Swiss markets underperform flat European bourses

* German DAX and Swiss SMI equity indexes underperform

* FTSEurofirst 300 flat

* Some relief over BES rescue deal

* But euro zone Sentix index fell in August

By Sudip Kar-Gupta

LONDON, Aug 4 (Reuters) - The German and Swiss stock markets were the worst performers in Europe on Monday, as the impact of sanctions against Russia held back equities and offset some relief over a Banco Espirito Santo rescue deal.

The latest Sentix survey of euro zone sentiment showed an unexpected slump in July as new EU sanctions on Moscow weighed on growth expectations, particularly in Europe's largest economy Germany, which has a large exposure to Russia.

Western powers stepped up sanctions against Russia after 298 people were killed on July 17 when a Malaysian passenger plane was shot down over rebel-held territory in eastern Ukraine, where Kiev's forces are fighting pro-Russian separatists.

Adidas (Other OTC: ADDDF - news) issued a profit warning last week, blaming its exposure to a weak Russian market, and brokerage Berenberg cut its rating on the sportsware company to "hold" from "buy".

"Germany stands to lose more than most in case of additional sanctions against Russia," said SteppenWolf Capital chief investment officer Phoebus Theologites.

Germany's benchmark DAX index, which had hit a record high of 10,050.98 points in late June, was down by 0.1 percent at 9,202.81 points - underperforming the broader pan-European FTSEurofirst 300 index which was flat.

SWISS BANKS

Switzerland's benchmark SMI (HKSE: 0198-OL.HK - news) index fell 1.2 percent, with shares in the two biggest banks - UBS (NYSEArca: FBGX - news) and Credit Suisse - near their lowest levels in about a year.

Traders said the banks were suffering from a continuation of negative momentum from last week, when the Zurich stock exchange was closed for a public holiday on Friday.

Regulators have been investigating trading units of both over the last year. Both banks say they are cooperating with the investigations.

Switzerland effectively ended its banking secrecy in May by agreeing to join other countries in sharing tax information, once a standard method of sharing is agreed.

"Switzerland has abandoned its banks. The banks are going to struggle," said Theologites.

However, there was some relief for the banking sector after Portugal agreed to spend 4.9 billion euros ($6.6 billion) on rescuing BES, its largest listed bank. The deal comes just months after the country exited an international bailout.

While BES shares - which plunged 73 percent last week - were still suspended, shares in Portugal's second-largest listed bank Millennium bcp rose 6 percent while Lisbon's PSI-20 equity index advanced by 1.7 percent.

"The market's initial reaction is that it's pretty reassuring to see Portugal moving quickly to rescue BES. We don't have all the details, but overall it eases systemic fears that had resurfaced last week," Saxo Bank sales trader Andrea Tueni said.

European stock markets have retreated from multi-year highs over the last month, but many investors expect the region's stock markets to rally later this year, helped by economic stimulus measures from the European Central Bank.

Edward Smyth, investment manager at JNF Capital, expected the DAX to hit a record high of 10,300 points within the next couple of months.

"I believe the market will re-reach its highs," said Smyth.

(U.S. dollar = 0.7451 euros)

Europe bourses in 2014: http://link.reuters.com/pap87v

Asset performance in 2014: http://link.reuters.com/gap87v

Today's European research round-up (Additional reporting by Blaise Robinson; Editing by Robin Pomeroy)