European shares fall as Santander announces capital increase

* FTSEurofirst 300 down 0.5 pct

* Santander slides after capital increase, dividend cut

* German exports, industrial output fall

* U.S. non-farm payrolls data due at 1330 GMT

By Lionel Laurent and Francesco Canepa

LONDON, Jan 9 (Reuters) - European shares snapped a two-day winning streak on Friday, with Spain's Banco Santander (Amsterdam: SANT.AS - news) sliding over 10 percent after announcing a capital increase and dividend cut.

After announcing the share sale late on Thursday, the euro zone's biggest bank by market value sold 1.2 billion shares at 6.18 euros apiece. That was at the bottom of the indicated price range and a 10 percent discount to its last closing share price.

The selling pressure dragged Spain's benchmark IBEX index down 2.7 percent, underperforming the pan-European 300 index. The FTSEurofirst was down 0.5 percent at 1,360.99 points at 1100 GMT.

Santander said the sale would fund expansion, which prompted speculation it may look at acquisitions such as Italy's Monte dei Paschi (Milan: BMPS.MI - news) . After a 12 rise on Thursday, shares in the Italian bank were down 5.4 percent.

Traders said the discounted price hurt the stock, though some analysts said the move would pay off.

"This was a needed capital rebuild that addresses a known issue," Goldman Sachs (NYSE: GS-PB - news) analysts wrote in a note to clients.

DATA DAY

Investors were otherwise focused on U.S. jobs data due later in the day. The market was subdued after strong gains on Thursday, which were driven by hopes that central banks would stick to accommodative monetary policies.

Figures out of Germany Friday morning showed industrial output from Europe's biggest economy fell 0.1 percent month-on-month in November, compared with a Reuters consensus forecast gain of 0.4 percent. Exports also fell.

A strong U.S. non-farm payroll reading would strengthen prospects of the U.S. Federal Reserve hiking rates later this year. It would also highlight the contrast in policies between the ECB, now facing euro zone deflation and contemplating quantitative easing.

"An extremely positive number could cause some ripples, particularly given the timing of a Fed rate hike, as it would suggest that any slack in the US labour market could disappear faster than anticipated," said Michael Hewson, CMC Markets analyst.

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

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

Today's European research round-up (Reporting By Francesco Canepa; Editing by Larry King)