European tech shares skid as valuations cast cloud over cyclical rally

* Wall Street open adds pressure to European tech

* Apple (NasdaqGS: AAPL - news) suppliers lead losses

* Valuations above 15-year average, but far from bubble levels

* Tech sell-off sparks concerns about cyclical strength (Updates prices, adds chart and comments)

By Helen Reid

LONDON, June 12 (Reuters) - European technology stocks suffered their sharpest selloff on Monday since the aftermath of last year's Brexit referendum, underscoring investor concerns about rich valuations across sectors most sensitive to economic growth.

Downgrades of the tech sector coupled with a slump in Apple's share price on a report that iPhones to be launched this year will use modem chips with slower download speeds than some rival smartphones, sparked a selloff in tech shares that knocked Wall Street on Friday and spread to Europe and Asia on Monday.

Europe's tech stocks were down more than 4 percent as Apple, a bellwether for the sector globally, fell another 3.8 percent at a seven-week low, piling further pressure on the sector.

Chipmakers, which supply to Apple and other smartphone companies bore the brunt of the selloff in Europe. Shares (Berlin: DI6.BE - news) of STMicro fell 10 percent while Dialog Semi slumped more than 7 percent.

"The tech sell-off seems driven by a more cautious view on Apple," said Colin McLean, managing director at SVM Asset Management.

Shares of Austrian chipmaker AMS (IOB: 0QWC.IL - news) , which supplies Apple and Samsung, skidded 11.5 percent, but have still more than doubled in value this year.

Brokers including Morgan Stanley (Xetra: 885836 - news) , Credit Suisse (IOB: 0QP5.IL - news) and JP Morgan (Other OTC: MGHL - news) have stepped up warnings in recent weeks on how much further the rally in cyclical stocks -- or those most geared to economic growth, such as banks, industrials and technology -- has to run.

Morgan Stanley downgraded its view on the European tech sector to "underweight" last week citing valuations, while Goldman Sachs (NYSE: GS-PB - news) published a similarly cautious view on U.S. tech stocks on Friday.

Shares of U.S. tech stalwarts Amazon, Facebook (NasdaqGS: FB - news) and Alphabet (Swiss: GOOGL-USD.SW - news) continued to fall on Monday after taking a hammering on Friday, sparking fears of broader market weakness.

"This is the nature of the tech sector. Valuations do from time to time become very stretched and they come back, and anyone who has paid a very high valuation might experience some short-term pain," said Fergus Shaw, partner at Cerno Capital.

VALUATIONS NOT YET EXUBERANT

In Europe, the regional tech index finished last week at its highest level in 15 years, easily outpacing other sectors, after rallying 24 percent this year.

Stock valuations are at their highest since 2004, and above their 15-year average.

Still, at 21 times forward earnings, they remain well short of the dizzying heights reached during the dotcom boom and bust when valuations hit more than 70 times.

Investors pointed to broader understanding of the tech sector as a potential guard against similar exuberance developing today.

"Valuations are not as eye-watering as they were during the tech bubble. Back then it was a minority of people who appreciated the disruptive, transformative nature of technology," said Shaw.

"The market as a whole is better able to deal with these companies now."

Semiconductor makers were some of the worst hit due to their high liquidity.

"Some of the liquid, very obvious momentum names can be punished hard when any short term momentum changes, and it can also lead to contagion for others," said Neil Campling, head of technology research at Northern Trust.

Cybersecurity stocks Micro Focus and Sophos were also among top fallers in the UK.

With (Other OTC: WWTH - news) this year's best performing sector down sharply there are worries that weakness could spread to other economically sensitive stocks where resurgent investor interest has also pushed up valuations.

Morgan Stanley strategists said last week that cyclical stocks' weighting in the MSCI Europe index was at a 20-year high, and a couple of percentage points off their tech-bubble peak.

They recommended investors switch into dividend-paying sectors such as real estate and telecoms which have been out of favour this year.

(Editing by Susan Fenton)