LIVE MARKETS-Indian stocks among the most expensive in the world

* STOXX 600 down 1.3%, DAX falls 1.6% in broad sell-off

* Trade tensions continue to rattle investors

* Chipmakers, car stocks tumble

* Merlin Entertainment rallies on push to go private

* Italian banks in bear territory

May 23 - 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

INDIAN STOCKS AMONG THE MOST EXPENSIVE IN THE WORLD (1450 GMT)

Record high alert! But hold on it's not a U.S. or even European index, it's India.

India's Nifty 50 and the Sensex both hit intraday all-time peaks after

Prime Minister Narendra Modi's re-election.

Defying the latest leg of the global sell-off, Indian shares have risen 2% since the exit

poll predictions were reported over the weekend and are holding their ground for the month when

the MSCI global index has lost nearly 5%.

Modi's pro-growth agenda is positive for equities, Morgan Stanley says... But keep an eye on

the valuations, UBS cautions.

On a price-to-earnings (P/E) basis, Indian stocks are more expensive than much of the rest

of the world - emerging markets, the U.S., Europe and Asia. The graphic below also shows how the

P/E ratio of Indian equities has been on the rise during the Modi era.

"A renewed majority for India's ruling coalition may support the market in the near term,

but we believe pricey valuations offer limited room to expand significantly," UBS says in its

daily macro note.

(Thyagaraju Adinarayan)

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BEARS STALK ITALIAN BANKS AGAIN (1228 GMT)

The bears are back! Italy's banks index just confirmed it's in bear territory, down 20%

since its mid-April peak - a whopping fall in just over a month (see below).

In the background of rising U.S.-China tensions and a chaotic Brexit process, Italy's public

finances and friction within the coalition have driven pressure on Italian assets up.

"We think an election is more likely than not by year-end... mere possibility of a vote is

likely to condition the governing parties' attitudes on fiscal policy, potentially putting Italy

on a collision course with the European Commission over budget discipline," Luigi Speranza,

chief global economist at BNP Paribas says.

The bear market in Italian banks comes just as regulatory data shows funds have in fact

reduced their bearish bets on the battered sector in recent months.

The data shows funds built short positions in early 2018, but progressively reduced position

over the last year. Perhaps this represents a missed opportunity for short-sellers?

Goldman Sachs, also weighing in on the Italian situation, notes an interesting divergence in

performance between the banks - which are highly sensitive to Italian sovereign bond spreads -

and Italian stocks more broadly.

"While Italian banks have been quick in pricing the wider BTP-Bund spreads, the FTSE MIB has

not underperformed its implied beta return given the support from the solid EPS so far," write

Goldman Sachs strategists.

Volatility on the FTSE MIB has also, intriguingly, stayed muted compared to the EuroStoxx

50, they say, meaning the Italian index could be a good hedge for political risk going into the

second half of the year with budget talks ramping up.

(Helen Reid)

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MAY MADNESS: MARKET PRICING "ARMAGEDDON" IN UK EQUITIES (1049 GMT)

May has been terrible! To be clear, the month of May has seasonally been awful for markets,

BNP Paribas strategists remind us - in line with the famous adage "sell in May and go away".

Increasing prospects of a no-deal Brexit and a breakdown in U.S.-China trade talks are

making it worse with Europe's STOXX 600 down 4.6% so far this month, and we still have six

trading days left in May.

BNP Paribas strategists have raised the probability of a no-deal Brexit to 40% - they're not

the first and probably not the last to raise their estimates. UBS flagged that "investors should

not be complacent about the threat of a no-deal exit."

So what happens to UK equities?

"The market is pricing armageddon in UK equities," said Edmund Shing, global head of equity

& derivatives strategy at BNP Paribas. As you can see below, UK equities are lagging other

developed markets.

Pointing to equities outflows globally, Shing says the most unpopular country is the UK.

"There is no visibility."

But he believes if there were catalysts such as retreating from a no-deal or finding a

Brexit deal, we could see a "massive" rally like the one we saw after the Brexit shock (June

2016-2018).

OK, that's one headache, but what about U.S.-China?

BNP's chief global economist Luigi Speranza sees a 50% chance that the U.S.-China trade spat

will prolong with no deal agreed until at least the end of the year. He also sees a 20% chance

of an escalation with more tariffs kicking in - translating into a total headwind of 70%.

(Thyagaraju Adinarayan)

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HUAWEI DISRUPTION TO EXACERBATE SMARTPHONE DOWNTURN (0924 GMT)

The deepening rift between the U.S. and China over trade and technology is driving markets

lower today. The new turn the trade war is taking, towards a focus on technologies with the U.S.

barring Huawei and many component makers cutting their ties with the Chinese smartphone firm, is

making investors especially worried we're in this for the long haul.

These tech tensions are putting added pressure on an already-weak market.

UBS' survey of 8,000 smart-phone owners across six key countries finds longer device

lifetimes are hurting consumers' desire to buy new products. Purchase intent in most regions is

stable or weaker year-on-year, and on average next 12-month purchase intent has fallen from 42%

to 41% year-on-year (see UBS' chart below).

"Given the overall weak outlook for the market and combining this with the disruption faced

by Huawei, we believe that the current smart-phone downturn could elongate and cut our unit

growth forecasts to -7%/+1% YoY for '19/'20E from -5%/+1%," they write.

"Our best educated guess is that Huawei has 3-4 months of inventory but we struggle to see

alternative supply for some critical components... that could pose a risk to Huawei's abilities

to produce smart-phones," they say.

UBS analysts' most preferred plays are Apple, LG Innotek, MediaTek, Murata, Taiyo Yuden, and

TSMC, while they recommend investors avoid BYD Electronics, Chipbond Technology, Fingerprint

Cards, Hon Hai, Pegatron, Sharp, SK Hynix, SMIC, Texas Instruments, Wistron, and Zhen Ding

Technology.

(Helen Reid)

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OPENING SNAPSHOT: CARS, TECH DRIVE MARKETS LOWER (0725 GMT)

Cars and tech are driving European stocks lower in early deals as trade tensions continue to

hurt sentiment, with little other macro news to drive direction or soothe investor nerves.

Major bourses are down between 0.6-0.9%.

A number of heavyweight stocks going ex-div are also dragging - Daimler is down 7.2% and

bottom of the DAX and Commerzbank is off 4.6%.

But otherwise it's risk-off. The car and auto suppliers index has hit December lows

and the tech index is down 1.2%. News that Panasonic is complying with the U.S. blockade

of Huawei has further rattled investors about the shock to complex global supply chains and

potential loss of business from the world's No. 2 smartphone maker.

Merlin Entertainments is a standout gainer, up 4.7% after an activist shareholder called for

the company to go private.

(Josephine Mason)

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ON OUR RADAR: TECH AND TRADE, PFEIFFER VACUUM AND MERLIN (0658 GMT)

European stock futures are pointing to heavy losses at the open as worries about a

protracted, complex dispute between Beijing and Washington forces investors out of risky assets.

The trade-sensitive DAX is down the most, while FTSE 100 is off 0.6% as concerns about

damage to the economy from the deepening political crisis and trade tensions offset the benefit

of the weaker sterling on its multinational constituents.

The growing list of companies complying with the U.S. blockade of Huawei is likely adding to

concerns about the impact on tech supply chains.

Aside from a slew of ex-divs that will keep stocks under pressure from Imperial Brands to

Daimler and Commerzbank, there's some earnings and dealmaking to drive individual moves.

Pfeiffer Vacuum shares are down 5% in pre-market trading after the industrial vacuum firm

gave a weak full-year guidance for sales and margin and Tate & Lyle is seen falling after

reporting lower FY profits and forecasting flat growth for 2020.

Shares in Merlin Entertainments, the owner of Madame Tussauds, are expected to get a boost

after activist investor ValueAct urged the company to go private, and WPP is seen higher after

private equity fund Vista Equity emerged as one of four U.S. bidders vying for a majority stake

in its data analytics firm Kantar.

(Josephine Mason)

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MAY DAY FOR MARKETS? (0636 GMT)

Our earlier blog highlighted UK Prime Theresa May's troubles, but if futures are anything to

go by, it looks like stocks are in for a tough session as investors continue to shun risky

assets rattled by the rising tensions between China and the U.S. All the major European stock

futures are down 0.7-0.8%.

One dealer said growing tensions between the U.S. and Iran are adding to the risk-off

sentiment.

But the trade spat is ever present in investors' minds, with the possible blockade of two

companies - Huawei and Hikvision - raising worries that Trump is targeting China's tech

ambitions, leading to a much more complicated and protracted spat with China than one centred on

securing a trade deal.

The list of companies severing ties with Huawei is growing as companies aim to comply with

the U.S. blockade of the company, hurting the world's No.2 smartphone maker: British chip

designer ARM owned by SoftBank and Panasonic overnight.

In upbeat news that may get overshadowed by macro issues, China's Lenovo Group, the world's

top personal computer maker, has reported better-than-expected profits, a sign of decent demand

in the world's No. 2 economy.

Otherwise it's relatively quiet on the corporate front except for the UK - there's a slew of

ex-divs today which will also pressure heavyweight stocks from Imperial Brands to Daimler and

Commerzbank in Germany.

UK early-years retailer Mothercare has delayed its full-year results by a day to Friday,

citing complexity due to UK and group restructuring, and United Utilities is the latest UK

utility to warn about the possibility of renationalisation.

BAT may be under pressure on news Brazil is suing the company Philip Morris, in a landmark

case aimed at recovering the public health treatment costs of tobacco-related diseases over the

last five years.

There's a bit of dealmaking: activist investor ValueAct is urging Merlin Entertainments, the

owner of Madame Tussauds, to go private, and private equity fund Vista Equity has emerged as one

of four U.S. bidders vying for a majority stake in WPP's data analytics firm Kantar. WPP's

U.S.-listed shares were higher overnight on the news.

Elsewhere, more positive signs that Italy's banks are making headway with their efforts to

get rid of their mountains of bad loans. UniCredit planning to sell up to $5.6 bln of soured

loans, according to a Bloomberg report and Intesa Sanpaolo plans to offload only up to 50% of a

10 billion euro portfolio of so-called "unlikely-to-pay" (UTP) loans.

Other headlines this morning:

Vista Equity Partners lines up binding bid for Kantar - sources

Deutsche Bank investors meet amid questions on strategy, leadership

ARM supply halt deals fresh blow to Chinese tech giant Huawei

Novartis has 25 blockbusters in the pipeline - CEO

Activist investor urges Madame Tussauds-owner Merlin to go private - FT

U.S. judge appoints Ken Feinberg mediator for Bayer Roundup settlement talks

AB InBev expects total investment of up to $400 mln in Nigerian brewery

In landmark case, Brazil sues top tobacco firms to recover public health costs

Judge rules against Trump, paves way for banks to provide his business records to Congress

Nestle and Fonterra mull sale of dairy joint venture in Brazil

Philip Green's Arcadia to close UK stores, review U.S. in restructuring

Intesa to sell up to 5 bln euros in UTP loans to Prelios-sources

(Josephine Mason)

*****

MAY DAY (0544 GMT)

Headline-watching over the U.S.-China trade spat are dominating most stock markets, but all

eyes may be on Number 10 again today as pressure on Theresa May to resign mounts and the Brexit

crisis deepens after the resignation last night of prominent Brexit supporter Andrea Leadsom

from the PM's government.

It's particularly galling for May as Britons head to the poll for the European elections,

where the ruling Conservative party are tipped for a big defeat.

Stocks sensitive to the UK economy and sterling like housebuilders, RBS and retailers, got

battered yesterday underscoring how quickly investors punished these sectors on big Brexit days,

although the dominant multi nationals helped lift the broader FTSE 100 index in positive

territory despite a brief wobble in the afternoon.

Sterling is under pressure this morning, lingering near 4-month lows hit yesterday,

but financial spreadbetters IG are calling the FTSE to open 27 points lower at 7,307, suggesting

worries about damage to the world's No. 5 economy as the political turmoil and the global trade

tensions continue may offset the falling pound.

Other European bourses are taking their cues from overnight Asia where stocks hit 4-month

lows on lingering trade concerns and the Fed minutes: Frankfurt's DAX is expected to open 62

points lower at 12,106 and Paris' CAC to open 21 points lower at 5,358, according to IG.

We've also got German, French and euro-zone flash PMI and Germany's investor/business Ifo

confidence indicator later in the morning for a glimpse into the health of the EZ economy.

"Investors will be paying close attention to the German manufacturing update seeing as it

has been in contraction territory throughout 2019 and the contraction is deepening. The decision

by President Trump to delay imposing tariffs on EU cars for up to six months should take some

pressure off the German car manufacturing sector," says David Madden, market analyst at CMC

Markets UK.

(Josephine Mason)

*****

(Reporting by Danilo Masoni, Helen Reid, Josephine Mason and Thyagaraju Adinarayan)