LIVE MARKETS-Italian government pact hits stocks

* European shares edge down

* STOXX set for eight-week winning streak

* Milan stocks suffer as League, 5-Star publish govt agenda

May 18 (Reuters) - Welcome to the home for real-time coverage of European equity markets

brought to you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on

Messenger to share your thoughts on market moves: danilo.masoni.thomsonreuters.com@reuters.net

ITALIAN GOVERNMENT PACT HITS STOCKS (0940 GMT)

5-Star and League have finally come to an accord and released details of their pact - and

it's sending Italian stocks, especially utilities and banks, tumbling down.

Italy's FTSE MIB is down 1.4 percent, with top fallers including UBI Banca (Amsterdam: UF8.AS - news) , Banco BPM, Poste

Italiane and Unicredit (EUREX: DE000A163206.EX - news) .

The Italian banks index is down 2.7 percent at its lowest since the start of

April. Below you can see the damage it's suffered since investors awoke to the political risk on

Wednesday.

Utilities are also taking a beating - with electrical utilities Enel (LSE: 0NRE.L - news) and A2A (EUREX: 928195.EX - news) down 2.2

percent and 1.7 percent.

While Goldman Sachs analysts have repeated their argument that "the market under-prices risk

in Italy", others are more sanguine.

Here's Mark Dowding, head of investment grade at BlueBay Asset Management, echoing several

investors' views that as long as Italy's membership of the EU is not jeopardised, everything

should be fine.

"Without a credible plan to call a referendum, there seems no clear path to an Italexit and

with underlying macro fundamentals improving we think that it would be a mistake to become too

bearish on developments coming from Rome," he writes in a note.

Despite watering down some of their most radical proposals, the accord promises to ramp up

spending, calls for billions of euros in tax cuts and a roll-back of pension reforms.

(Helen Reid)

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THE FALL OF CASH (0907 GMT)

Cash ain't what it used to be! The rise in U.S. government bond yields has made it less and

less appealing, BAML says today, announcing that allocation to the asset class has reached a

record low among its private clients.

Needless to say, 3 percent yields for 10-year treasury notes are taking the blame even if

the trend, as you can see below, began soon after the financial crisis reached its climax.

(Julien Ponthus)

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EUROPEAN STOCKS SHY BACK FROM THEIR HIGHS (0719 GMT)

European stocks are pulling back from yesterday's 3 1/2 month highs in early trading, but

it's nothing dramatic and still leaves the STOXX 600 on track for its eighth week of gains. The

FTSE 100 is also dipping slightly, having risen to a record closing level yesterday.

While Italy's FTSE MIB is holding flat, utilities are dragging on the index with Enel down

0.6 percent after Goldman took it off its "conviction list" on energy policy risks.

Some badly-received results are also driving the market down. Richemont is bottom of

the STOXX, down 7.7 percent after reporting a weaker than expected profit, while AstraZeneca (Swiss: AZN.SW - news)

is dragging the healthcare sector down, falling 2.6 percent after generic competition to

its cholesterol drug Crestor and higher costs hit its revenue.

Ubisoft meanwhile is leading the index, up 6.2 percent to a fresh record high after the

French game maker reported record profit margins driven by new releases including Far Cry and

Assassin's Creed Origins.

(Helen Reid)

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WHAT WE'RE WATCHING BEFORE THE OPEN (0653 GMT)

European shares are expected to open little changed at the end of a strong week that has put

the STOXX 600 on course for its eighth straight week of gains - its longest winning weekly

streak since at least March 2015.

Energy stocks have been a key driver for the gains as investors seek to take advantage from

the rising crude prices by lifting exposure to a sector which has positive cash flows. Stock

index futures are trading between a fall of 0.2 percent and a gain of 0.2 percent.

Earnings updates will continue to drive single stock moves, with Zurich-listed Richemont

seen falling around 3 percent after the luxury goods group posted a net profit that fell short

of expectations. In the UK focus on AstraZeneca (NYSE: AZN - news) as generic competition to cholesterol fighter

Crestor and higher costs hit the drug maker in the first quarter.

Eyes also on Italian state-controlled utility Enel after Goldman took the stock off its

Conviction List saying plans presented by M5S/Lega could be deflationary as they could lower

power bills by around 15 percent.

An exclusive Reuters report saying Dubai Aerospace Enterprise is in talks to buy a

near-record total of 400 jetliners from Airbus and Boeing (NYSE: BA - news) could add fuel to a rally in

aerodefence stocks which are among the biggest sectoral gainers in Europe so far this year.

(Danilo Masoni)

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MORE DEALMAKING TO DRIVE THE DAY WHILE ANALYSTS DIGEST ITALY DEVELOPMENTS (0645 GMT)

M&A just isn't stopping, with yet another payments deal with PayPal (TLO: PYPL-U.TI - news) buying Sweden's iZettle,

and some further dealmaking in the UK with Lloyds selling its Irish mortgage book to Barclays (LSE: BARC.L - news) .

Meanwhile the Italy developments are driving some brokers to express concern.

Goldman Sachs (NYSE: GS-PB - news) analysts say they're worried about the potential impact of Italy's new

government on utilities, removing Enel from their "conviction list".

While the parties' manifestos contain some positives, GS says the parties' plans, including

a push towards renewables, could have a deflationary impact on power prices, lowering power

bills by an estimated 15 percent.

More key headlines ahead of the open:

Lloyds sells Irish mortgage book to Barclays for 4 bln pounds

UK competition regulator seeks comment on Sainsbury (Amsterdam: SJ6.AS - news) 's/Asda deal

PayPal agrees to buy Sweden's iZettle in $2.2 bln deal

AstraZeneca hit by falling Crestor sales, higher costs

British retailer Dunelm appoints Laura Carr as CFO

Richemont says could do more M&A, net profit misses poll

Carpetright Says To Raise About 60 Mln Pounds Through Share-Issue

(Helen Reid)

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STOXX SET FOR EIGHTH STRAIGHT WEEK OF GAINS (0623 GMT)

European stock index futures have opened rather flat, reflecting a lack of conviction at the

end of a strong week which has put the pan-European STOXX 600 benchmark on course for

its eighth straight week of gains, as markets recover from a turbulent start of the year. That

would be the longest weekly winning streak in more than three years - at least.

(Danilo Masoni)

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EARLY MORNING HEADLINE ROUNDUP (0554 GMT)

Barclays activist urges trading shutdown at investment bank - sources

Ryanair COO says pilot staffing situation has stabilised

GSK bets on lift from new lung drugs ahead of Advair's last gasp

KKR to sell Finnish health group to CVC (Taiwan OTC: 4744.TWO - news) for 1.8 bln euros - FT

FDA names drugmakers potentially acting to delay cheap generics

UBS (LSE: 0QNR.L - news) to double headcount in India - Economic Times

Mercedes (Xetra: 710000 - news) to restart Alabama SUV plant next week after parts shortage

Dubai Aerospace in talks to place huge order for 400 jets

Vivendi (LSE: 0IIF.L - news) threatens to call new AGM at Telecom Italia (Amsterdam: TI6.AS - news) to change board

Vivendi to review potential change in music unit's shareholding structure

Natixis (LSE: 0IHK.L - news) posts profit rise helped by asset management, insurance

Ubisoft posts record profit margins in 2017/2018, driven by new releases

Vallourec Q1 Net Loss Group Share Widens To ‍​170 Million Euros

BP in talks to take Conoco's UK field in swap deal - Bloomberg

China's AT&M (Shenzhen: 000969.SZ - news) seals takeover of German aerospace supplier Cotesa - Handelsblatt

Santander poised to apply for RBS (LSE: RBS.L - news) small business lending funds - Bloomberg

Bollore Group says transport, logistics drive Q1 revenues higher

SAP (Amsterdam: AP6.AS - news) 's CEO hints to investors more margin gains on the way

Italy's League wants to keep Monte dei Paschi (Milan: BMPS.MI - news) in public hands

(Danilo Masoni)

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MORNING CALL: EUROPEAN SHARES SEEN MIXED (0528 GMT)

European shares are set for an uncertain open today following a strong week with financial

spreadbetters expecting London's FTSE to open 14 points lower at 7,774, while Frankfurt's DAX is

seen opening 21 points higher at 13,136 and Paris' CAC to 1 point lower at 5,621.

Over in Asia, stocks were steady amid caution over developments in U.S.-China trade

negotiations, while the dollar perched near a five-month peak after the benchmark U.S. Treasury

yield hit its highest in seven years.

(Danilo Masoni)

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