Europe shares pause after sell-off; UK retailers sag

* FTSEurofirst 300 down 0.03 pct, Euro STOXX 50 up 0.02 pct

* Italian shares outperform as bond yields hit record low

* Morrison's warning sets off sell-off among UK retailers

* Worries over Chinese growth, Ukraine weigh on sentiment

By Blaise Robinson

PARIS, March 13 (Reuters) - European stocks were steady on Thursday, halting their two-week slide, although a sell-off among UK retailers after a profit warning by Morrison's kept investors on edge.

Worries over China's pace of economic growth as well as tensions in Ukraine also weighed on sentiment. However, Italian stocks bucked the trend, rallying as the country's bond yields fell to record lows at an auction, highlighting the strong appetite for Italy's financial assets.

Milan's FTSE MIB stock index was up 0.7 percent, as Italy sold 7.75 billion euros in bonds and paid record low yields on three- and 15-year debt, a day after the government of new Prime Minister Matteo Renzi approved sweeping tax cuts in a bid to boost the stagnant economy.

Shares in utility Enel (Milan: ENEL.MI - news) were up 3.2 percent and Telecom Italia (Other OTC: TIAJF - news) added 0.9 percent.

The MIB has been strongly outperforming since the start of the year, up 10.3 percent while Europe's broad FTSEurofirst 300 is down 0.7 percent and Germany's DAX is down 3.6 percent over the same period.

"The Italian market is very impressive. That's one of the markets that suffered the most during the debt crisis, and now people see a strong catch-up potential," FXCM (NYSE: FXCM - news) analyst Vincent Ganne said.

"It's one of the countries that benefits the most from the big rotation in global asset allocation out of emerging markets and into Europe. This momentum in flows is very strong."

Despite the recent pull-back, European stocks continue to attract massive investment flows from global investors, supported by expectations of a pick up in the region's economy.

At 1150 GMT, the FTSEurofirst 300 index of top European shares was down 0.03 percent at 1,306.75 points. The index has slipped about 3.4 percent since late February.

"It's a perfect market for swing traders," TradingSat analyst Alexandre Tixier said.

"We've entered a very volatile consolidation phase, and the best strategy is to go contrarian and buy when there's a big negative move, and sell when stocks quickly bounce back. The market could stay in this phase for a couple of months."

UK retailers dropped after Wm Morrison's sharp cut to its profit outlook, which sent its shares down 8.6 percent. Rivals Sainsbury's and Tesco (Xetra: TCO.DE - news) lost 7.1 percent and 4.6 percent respectively.

Shares in Adecco (VTX: ADEN.VX - news) , the world's largest staffing agency, were among the top losers, down 7.1 percent after Swiss investment firm Jacobs Holding and the Jacobs family sold a 16 percent stake for 2.2 billion swiss francs ($2.5 billion).

German potash miner K+S sank 6.2 percent after saying it expects operating earnings to fall for a third straight year due to lower prices of the fertiliser ingredient following the break-up of an export alliance between two larger rivals.

Also rattling investors, data showed China's economy slowed markedly in the first two months of the year, with growth in investment, retail sales and factory output all dropping to multi-year lows.

The figures, which fuelled worries of a greater-than-expected cooling of the world's second-biggest economy, weighed on copper prices, which were hovering not far off multi-year lows on Thursday.

Tensions in Ukraine also kept investors on edge. U.S. President Barack Obama warned Russia, whose forces have taken control of Ukraine's Crimea region, it faced costs from the West unless it changed course in Ukraine, and pledged to "stand with Ukraine" as he met the country's new prime minister in Washington.

"In the short run, equity markets are risk-averse due to the political uncertainties and the fear of a slowdown in China," said Christian Stocker, equity strategist at UniCredit (Berlin: CRIH.BE - news) . "But in the medium-term, the picture remains positive for equities."

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