European stock rally halts as coronavirus restrictions weigh

By Sruthi Shankar and Shashank Nayar

(Reuters) - European stocks slipped from eight-month highs on Tuesday, as tighter coronavirus restrictions across the continent raised doubts about a swift economic rebound and countered optimism about a COVID-19 vaccine.

The pan-European STOXX 600 <.STOXX> ended 0.2% lower. The index jumped over 1% to close at its highest level since late February on Monday following positive data about drugmaker Moderna's <MRNA.O> COVID-19 vaccine.

Pfizer and partner BioNTech flagged strong progress in their COVID-19 vaccine last week, sparking a rally in global equities.

"Euphoria is understandable, but unsustainable," strategists at French bank Societe Generale wrote in a note. "The surge of COVID cases in the US and Europe's second lockdown guarantee global economic weakness for several more months."

Many European countries have imposed curbs to fight a resurgence in virus cases. Sweden moved to restrict the size of public gatherings and a British medical adviser suggested strengthening the three-tier system of restrictions when the full lockdown in England ends.

Travel stocks <.SXTP> fell 1.1%, with British airline EasyJet <EZJ.L> down 1.9% after it recorded a 1.27 billion pound ($1.68 billion) annual loss, the first in its history as the pandemic ravaged the travel industry.

Healthcare <.SXDP> and tech <.SX8P> sectors that have outperformed the broader market during the pandemic declined 1.3% and 0.6% respectively.

Meanwhile, growth-linked cyclical sectors such as oil and gas <.SXEP> and automakers <.SXAP> reversed early losses and jumped 0.7% as investors bet progress in the development of a COVID-19 vaccine will support the battered sectors.

"The vaccine news eliminates downside risks but is more likely to trigger a rotation than an outright risk rally. We think cyclicals are set to outperform in this rotation," said TS Lombard's Oliver Brennan.

However, banks came under pressure as Spain's BBVA <BBVA.MC> fell 4.4% after it and smaller rival Sabadell <SABE.MC> said they were in talks to create the country's second-biggest domestic lender by assets.

Sabadell jumped 6.8%.

British asset manager Intermediate Capital Group <ICP.L> surged 7.9% to the top of the STOXX 600 after reporting strong half yearly results.

Tobacco company Imperial Brands <IMB.L> jumped 7.3% after it forecast a rise in profit for 2021, helped by expected improvements in its e-cigarette business.

(Reporting by Sruthi Shankar and Shashank Nayar in Bengaluru; Editing by Anil D'Silva and Bernadette Baum)