LIVE MARKETS-The banks just can't handle this

* STOXX 600 up 0.3%, extending last week's gains * Volumes low due to U.S. holiday * China, US slap more tariffs on goods in tit-for-tat spat * Defensive sector - utilities, telecoms and healthcare - best performers * Airlines gain amid hopes of sector consolidation Welcome to the home for real-time coverage of European equity markets brought to you by Reuters stocks reporters and anchored today by Josephine Mason. Reach her on Messenger to share your thoughts on market moves: josephine.mason.thomsonreuters.com@reuters.net THE BANKS JUST CAN'T HANDLE THIS (1010 GMT) The more negative, for longer, the worse ... That's a line in BofA Merill Lynch's latest research note on European banks in the era of negative rates "forever" as the ECB gets ready to cut interest rates by as much as 20 bps to -0.60%. "Negative-forever makes the banking system weaker as time goes on," BAML analysts say. "The banks just can't handle this." In the current environment, BAML says banks can be categorised broadly in two ways: 1) those banks that embrace the situation and change 2) those banks that cannot afford the change The bank believes the second group could be hit harder even if tiering deposit rates are implemented as the measure is "only some amelioration of the downside". BAML says it remains confident in dividends and the top-line on some banks including ING , KBC, Erste, Intesa Sanpaolo, Credit Agricole and Bank of Ireland. Euro-zone banks have lost more than 80% of their value from 2007 highs as the global financial crisis and euro-zone debt crisis led to record interest rates, making it difficult for banks to make profits. What happens next? Are banks going to charge you to hold cash in their vault? BAML says it is possible, but does not see them introducing charges anywhere near rapidly enough to offset sharply lower ECB rates. Japanification coming? BAML says: "We see the rate of decline in Net Interest Income likely to accelerate as the ECB cuts rates further and bond yields have fallen into negative territory. Things are not yet as challenged as in Japan, but directionally the pace of change is building." Here are some big names out of the 15 on their "underperform" list: ABN Amro, BBVA , Bankia, Commerzbank, Deutsche Bank, Nordea, Lloyds, RBS and SocGen Euro-zone bank earnings expectations for 2019/20: Japanification of Europe: (Thyagaraju Adinarayan) ***** OPENING SNAPSHOT: CAUTIOUSLY HIGHER (0747 GMT) European stocks starting the month on a positive note, shrugging off a more sombre mood in Asia overnight following disappointing factory data from China as miners benefit from a rally in iron ore prices after Beijing pledged to splash more cash on infrastructure in a bid to shore up the world's No. 2 economy. The pan European STOXX 600 is up 0.4% and the euro-zone index is up 0.3%, extending last week's gains even as worries linger about the damage from the U.S.-China trade war. Traders say the markets are lacking direction and liquidity due to the U.S. Labour Day holiday. Last week, the euro-zone benchmark rose 2.7% for its best week since April. Italy's leading the pack, with the FTMIB up 0.9% and FTSE is up 0.6%. There are few big individual moves - Aroundtown is up 1.5%, after rallying as much as 10% pre-market on news rival TLG Immobilien bought a 10% stake in the company at a 10% premium for Friday's closing price. Indebted budget airline Norwegian Air has bounced back from an early drop at the open - up 5% now - even after warning it will delay bond repayments by up to two years. Other airlines are getting a lift too with Deutsche Lufthansa at the top of the German index and British Airways owner IAG up 1.6%. (Josephine Mason) ***** ON OUR RADAR: REAL ESTATE, PLANES AND MINERS (0648 GMT) European stock futures are showing unexpected resilience to downbeat sentiment in Asia overnight, shrugging off for now disappointing factory activity data for China deepened worries about damage from the tit-for-tat trade spat between Washington and Beijing as the world's top economies hit each other's goods with another round over tariffs. The Eurostoxx are up 0.1%, while London's FTSE futures are outperforming as its heavyweight miners get a boost from strong iron ore prices overnight. In early headlines, Germany's real estate sector is taking the spotlight after TLG Immobilien bought a 10% stake in rival Aroundtown for $1.14 billion and said it was considering a potential deal with the company. The purchases values the shares at 8.3 euros per share, a 10% premium to Friday's close and shares are trading up about 7%. TLG shares are up about 2.6%. The sector rallied on Friday after a German newspaper reported the rent freeze planned by Berlin's regional government might be less strict than previously expected. Airbus SE may get a lift from fresh concerns about possible delays to getting Boeing's 737 MAX back into service. The WSJ report citing government and pilot union officials briefed on the matter said friction between the company and international air-safety authorities threatens a new delay in bringing the fleet back into service. On Sunday, American Airlines extended its cancellations of 737 MAX flights through Dec. 3 but said it remains confident that the aircraft will be approved to fly again this year following new software and pilot training. An Italian court has ruled in favour of French media giant Vivendi in the ongoing legal wrangling over the restructuring plan for Mediaset, although the decision was not enough to scupper the deal. In the latest sign that backing from Softbank is bearing fruit, Wirecard said it will be the preferred payment service provider for Softbank's U.S. unit Brightstar, a deal it said it expects to generate "significant transaction volume". In a highly anticipated move, Europe's second largest PE fund EQT Partners announced plans for an IPO, confirming a Reuters report last week. Investor AB has a stake in the company. TLG Immobilien weighs Aroundtown merger after buying 1 bln euros stake Wirecard signs cooperation agreement with Softbank's Brightstar Julius Baer decides to keep Kairos after strategic review Italy's Carige expects to return to profit in 2021 Scout24's activist shareholders gain non-executive board seat SSE launches sale of North Sea gas fields in single package - sale document Italy's court rules in favour of Vivendi in Mediaset restructuring row Rio Tinto takes GFG Alliance to arbitration over outstanding smelter payments Lawyers seek $26 million in Volkswagen U.S. fuel economy settlement Airbus pulls out of Canada fighter jet race, boosts Lockheed Martin's chances SMTPC H1 Operating Profit Down At 8.8 Million Euros EXCLUSIVE-Freenet-led revolt against Sunrise's UPC deal gains allies Dechra ramps up contingency plan for a potential hard Brexit De La Rue names Kevin Loosemore chairman designate (Josephine Mason) ***** EUROPE ON THE BACKFOOT (0527 GMT) Weaker-than-expected manufacturing data from China and confirmation that Washington and Beijing slapped a new round of tariffs on each other's goods at the weekend are expected to sap investors' risk appetite on the first trading day for September. European stocks ended the week and month on a strong note, with the pan European STOXX 600 at its highest since Aug. 2. One exception today may be London's FTSE, which may get a boost from its mining heavyweights after the jump in iron ore prices overnight in China, the world's top consumer of the steelmaking raw material. While most markets have worried about the damage to the global economy from the tit-for-tat spat, iron ore traders were buoyed by a pledge on Saturday from Beijing to beef up investment in infrastructure projects and regional development to support the world's No. 2 economy. Financial spreadbetters expect London's FTSE to open 6 points higher at 7,213, Frankfurt's DAX to open 18 points lower at 11,921, and Paris' CAC to open 8 points lower at 5,472. (Josephine Mason) ***** (Reporting by Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)