As China sneezes, bankers hope European IPO market won't catch cold

* Bankers hope turmoil will end before September

* ABN Amro, Poste Italiane expected in second half

* Lower risk of interest rate hikes seen as positive

By Freya Berry, Emiliano Mellino and Sinead Cruise

LONDON, Aug 26 (Reuters) - Bankers still hope to float scores of companies on Europe's shell-shocked stock markets in coming weeks, unless a summer selloff sparked by China's economic woes extends into September.

Between 20 and 40 European listings are scheduled in the next few months, and bankers involved in such deals are hopeful that markets roiled by China's limp growth prospects can be sufficiently soothed by next week, when the sales window traditionally reopens after the summer break.

But that window can shift, depending on market conditions, and with the pan-European FTSEurofirst 300 index plumbing eight-month lows, persuading companies to sell their shares into such a shaky market could be a challenge, bankers say.

"There is a lot of panic in the system," said Francois Wat, global co-head of equity capital markets (ECM) at Rothschild. "It (Other OTC: ITGL - news) 's very difficult in emerging markets ... For Europe and the U.S (Other OTC: UBGXF - news) ., it's a question mark. Are we going to pull deals? Not sure."

When stocks are first floated on the market, investors generally have to sell existing holdings in order to buy new positions. If the prices they can achieve on those sales are unappealing, they can decide to sit and wait, making it tough for market newcomers to sell their shares.

The impact of the rout in global stocks has also been felt in primary debt markets, where activity has dropped as some opportunistic issuers wait for the volatility to subside.

Last year, UK deals planned in September were postponed as investors awaited the outcome of the referendum on Scottish independence. The window can also close altogether, as when a market sell-off last October caused several sales to be scrapped.

ECONOMIC CHILLS

Still, bankers said they were optimistic on prospects for upcoming deals, citing speculation that the Chinese economic chills could push prospective U.S. and European rate hikes further into the future.

"You always have to look at the big picture," said Klaus Hessberger, co-head of ECM for EMEA at JPMorgan (LSE: JPIU.L - news) . "With the current volatility and macro shocks, the risk of interest hikes is much lower. Some stocks might go down now, but that's how you can achieve better returns in future."

The privatization of Dutch bank ABN Amro, which has a book value of 15.9 billion euros ($18 billion), is one of Europe's most high profile deals. Last week its chief executive said the market was "optimal" for a listing, expected by the end of the year; on Wednesday a number of banks were named who will help run the offering.

"There is no fixed timetable for the planned IPO of ABN Amro ... The timing of the IPO depends on the state of the financial markets, amongst other things," the Dutch agency handling the sale said in a statement.

Other major flotations in the pipeline include those of Poste Italiane, set to be the country's biggest privatisation in a decade, and private equity-backed UK payments company WorldPay.

"The Poste Italiane IPO is going ahead as planned," an official at the Italian treasury said. WorldPay and part-owner Bain declined to comment, while co-backer Advent did not immediately respond to requests for comment.

Another London-based ECM banker, who feels Europe's IPO pipeline will not fall to Asian market turmoil, noted the biggest stock market casualties were in the oil, commodity and emerging market sectors, "whereas what's in the pipeline is developed market and non-commodity."

FEAR GAUGE

Yet the knock-on effects could be hard to isolate.

The so-called "fear gauge' volatility index was trading as high as 34.57 by 1542 GMT on Wednesday. IPO bankers usually say they would reconsider a deal when the measure is around the 23 mark.

"The last two weeks have been unhelpful," a senior ECM banker at a European institution said. "But the silver lining is that this is all happening in August rather than September."

Money raised from European initial public offerings (IPOs) is down more than a quarter on 2014 at $41.2 billion, according to Thomson Reuters (Dusseldorf: TOC.DU - news) data, in a year that has seen fewer issuers needing to come to market following a red-hot 2014.

This year the focus in investment banking circles has turned to corporate takeovers, where activity has spiked to all-time highs.

Some investors and bankers pointed out the flurry of big-ticket takeovers has given shareholders ample money to reinvest. Others were taking advantage of the dip to buy admired stocks at bargain basement prices.

"Did this rout make sense? No, I don't see that. For the last couple of days I have been buying stocks, adding to those that I hold," said Rajesh Varma, portfolio manager at DNCA Invest Global Leaders Fund.

"Just because the Shanghai index has dropped back to zero for the year, that doesn't mean that there won't be demand ... I think a lot of short-term investors have been running around like headless chickens." ($1 = 0.8757 euros) (Additional reporting by Stephen Jewkes in Milan and Toby Sterling in Amsterdam; Editing by David Holmes)