European shares ease on weaker insurance sector, Italian stocks surge

* Pan-European index ends 0.1 pct lower

* Generali (EUREX: 566030.EX - news) falls after Intesa drops takeover plan

* LSE, Deutsche Boerse (IOB: 0H3T.IL - news) down as tie-up expected to fail

* British motor insurers slide after new rules

* Adidas (IOB: 0OLD.IL - news) boosted by first upgrade for seven months (Adds details, updates prices)

By Danilo Masoni

MILAN, Feb 27 (Reuters) - European shares ticked lower on Monday, weighed down by losses among insurance stocks, while exchange operators slipped on expectations that the merger between London Stock Exchange (Other OTC: LDNXF - news) and Deutsche Boerse will fail.

The STOXX Europe 600 closed 0.1 percent lower, adding to Friday's steep losses that sent the pan-European index to its lowest closing level for three weeks.

Generali, down 2.8 percent, was among the biggest drags on the STOXX after Intesa Sanpaolo (Amsterdam: IO6.AS - news) said late on Friday it had decided not to pursue a possible tie-up with Italy's biggest insurer.

The decision, which helped Intesa gain 5.5 percent on relief that the Italian bank was not putting its dividend at risk to pursue the deal, prompted some analysts to downgrade Generali.

"As we do not expect another bidder our valuation now implies 10 percent downside," said RBC Capital Markets, which downgraded Generali to "underperform" from "outperform".

However, a rally for shares including Intesa Sanpaolo and Banco BPM helped Italy's benchmark FTSE MIB index to surge 1.7 percent.

Banco BPM was up 6.1 percent, the top gainer in the STOXX 600, after the lender said late on Friday that it comfortably met the European Central Bank's capital requirements.

However, insurance stocks lost ground.

Britain's biggest motor insurers Admiral and Direct Line fell 2.5 percent and 7.2 percent respectively after the government announced new rules that push up lump sum payments for personal injury claims, a change the industry's trade body described as "crazy".

London Stock Exchange (LSE) and Deutsche Boerse fell 1.1 percent and 2.4 percent respectively after the LSE said that its proposed merger with the German exchange was unlikely to be approved by the European Commission.

"It becomes clear that the merger with Deutsche Boerse is on a knife-edge... There is a long, long way to fall if this tie-up dies," ETX Capital market analyst Neil Wilson said.

Among other listed exchange operators, Euronext (Euronext: ENX.LS - news) was down 2.2 percent.

Elsewhere, Dutch mail and parcel company PostNL (Swiss: PN6.SW - news) fell 7.4 percent after its underlying cash operating income for the fiscal year came in below market expectations.

Adidas rose 3.9 percent after UBS (LSE: 0QNR.L - news) and RBC lifted their ratings in the first upgrade for the German sportswear group for seven months.

"We think upgrade cycle will continue this year and see opportunity for Adidas to surprise on sales growth, gross margin and operating leverage," UBS analyst Fred Speirs said in a note. (Additional reporting by Atul Prakash; Editing by Louise Ireland (Other OTC: IRLD - news) )