European shares weighed down by IAG and Restaurant Group

(ADVISORY- Reuters plans to replace intra-day European and UK stock market reports with a Live Markets blog on Eikon - see cpurl://apps.cp./cms/?pageId=livemarkets for site in development. See the bottom of the report for more details) Adds details, closing prices)

* FTSEurofirst 300 index falls 2.2 percent

* IAG shares down on weaker demand outlook

* Restaurant Group (Other OTC: RSTGF - news) slumps after profit warning

* Strong results boost Vestas

By Atul Prakash and Danilo Masoni

LONDON/MILAN, April 29 (Reuters) - European shares fell on Friday to register their biggest weekly drop in more than two months, with travel and leisure stocks among the top losers after updates from British Airways owner IAG and Restaurant Group.

The STOXX Europe 600 Travel and Leisure index fell 2.3 percent, putting pressure on the broader market.

British Airways-owner IAG fell 4.7 percent. It (Other OTC: ITGL - news) said it would moderate its capacity expansion in the short term in response to weaker overall demand, despite reporting a forecast-beating rise in first-quarter profit.

Britain's Restaurant Group, which operates chains such as Chiquito and Frankie & Benny's, slumped 26.5 percent after warning on full-year profit outlook.

The bank sector index fell 3.2 percent with Royal Bank of Scotland and Bankia (Amsterdam: QU8.AS - news) down 6 percent and 3.6 percent respectively after both lenders reported lower profits.

"Weaker earnings are starting to become a problem," Philippe Gijsels, head of research at BNP Paribas Fortis, said.

"Companies that disappoint are being punished disproportionately while those that surprise on the positive side shoot up, indicating that markets are nervous and have little patience with underperformance," he added.

The pan-European FTSEurofirst 300, which hit a three-month high last week, fell 2.2 percent. It has fallen 2.1 percent this week, its biggest weekly loss since mid-February.

Shares (Berlin: DI6.BE - news) in Swiss money manager GAM, Swedish engineering group Sandvik (LSE: 0HC0.L - news) and German airline group Lufthansa fell between 4.6 and 5.6 percent as their shares traded without the attraction of latest dividend payouts.

French drugmaker Sanofi (LSE: 0O59.L - news) fell 5.3 percent after Medivation (NasdaqGS: MDVN - news) 's board rejected its unsolicited $9.3 billion takeover proposal, saying the offer undervalued the company and its pipeline of oncology drugs.

On the positive side, Danish wind turbine maker Vestas rose 4.5 percent, the top gainer in the FTSEurofirst 300 index, after posting a stronger-than-expected first-quarter operating profit before special items and maintaining its 2016 forecasts.

Today's European research round-up

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Mike Dolan, Markets Editor EMEA. (Additional reporting by Joseph Sotinel in Paris, editing by Dominic Evans)