European shares tread water as UK election, Spanish banks in focus

LONDON, June 7 (Reuters) - European equities drifted along in early deals on Wednesday as investors shied away from riskier assets a day ahead of voting in the UK's general election, while Spanish lenders were also in focus.

The pan-European STOXX 600 index was flat in percentage terms, while Britain's FTSE 100 index advanced 0.2 percent and Germany's DAX declined 0.2 percent.

Spanish banks helped the IBEX shake off an early fall to gain 0.2 percent, after Santander said it would buy struggling peer Banco Popular and carry out a capital increase of around 7 billion euros ($7.9 billion).

Shares (Berlin: DI6.BE - news) in Santander reversed course to trade 0.3 percent higher, while Banco Popular's shares were suspended. Peers BBVA and Caixabank (Amsterdam: CB6.AS - news) also advanced.

Covestro (IOB: 0RBE.IL - news) dropped nearly 5 percent after Bayer (Swiss: BAYN-EUR.SW - news) cut its stake further in the plastics maker to 44.8 percent from 53.3 percent.

On the positive side, shares in utilities E.ON and RWE (IOB: 0FUZ.IL - news) rose 4.7 percent and 3.8 percent, respectively, after Germany's highest court ruled that a nuclear tax is illegal. (Reporting by Kit Rees; Editing by Hugh Lawson)