LIVE MARKETS-Stocks take a hit as U.S. factory data contracts

* European shares turn south after ISM data; STOXX 600 down 0.4% * ECB package could include rate cut, tiering, new guidance, Reuters reports * Italy nearly flat as banks rise on ECB report * UK domestics hit as no-deal Brexit showdown starts * Italian parties agree agenda to form new government * Wall Street opens lower 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: rm://josephine.mason.thomsonreuters.com@reuters.net STOCKS TAKE A HIT AS U.S. FACTORY ACTIVITY CONTRACTS (1446 GMT) European stocks took a sharply beating after U.S. August manufacturing data showed the sector contracted for the first time in more than 3-1/2 years, pouring cold water on a very short-lived rally after Reuters reported details of the ECB stimulus package. The U.S. factory data is the latest sign that the global economy is slowing amid an intensifying U.S.-China trade war. The world's No. 1 now joins the euro zone, where factory activities have significantly slowed down this year. A London-based trader says the data indicates that U.S. manufacturers are enduring a "torrid summer" and manufacturing is likely to have again acted as a significant drag on the economy in the third quarter. The U.S. national factory activity decreased to 49.1 in August, the lowest reading since January 2016, missing a Reuters forecast of 51.1. A Reuters exclusive that ECB in its upcoming monetary policy meeting on Sept. 12 could deliver a rate cut, tiering and new forward guidance boosted euro-zone banks, but the gains faded soon after the U.S. factory activity data. "One would think bad is good for the stimulus call, but perhaps things are just so bad the Fed/ECB/BOJ cannot fix it," says the trader. Still, one pocket of strength is Italy's battered banking index which has managed to hold onto its gains. That's slightly topsy turvy though as the biggest beneficiaries of a tiering deposit scheme would be the northern banks in Germany, France and the Netherlands which have bigger reserves. Global manufacturing PMI until July: (Thyagaraju Adinarayan and Josephine Mason) ***** "THE MARKET WILL BE RANGE-BOUND" (1355 GMT) September has started on the back foot and although politics are at centre stage in depressing the mood, markets may soon also witness another round of earnings downgrades, this time for 2020. "We think that in September there will be a wave of earnings downgrades," Bernstein says. But should investors worry about that? Perahps not too much. Bernstein strategists say it would be wrong to jump from this bleak view on earnings to being bearish about the market, given the big outlflows from equities into bonds. "A recession might not yet be in analyst numbers, but it is in investor asset flows. Thus we think the market will be range-bound," they note. That being said, they remain overweight Growth, but say there are trades both for Growth and Value portfolio managers. (Danilo Masoni) ***** UK STRIKES GOLD (1152 GMT) UK buys more gold than Asia - a rare headline we would come across, but it was true in July given intensifying trade war, Brexit blues and slowing global economy prompted investors to safeguard their money. Gold prices have surged by a fifth so far this year in its best run since 2010 amid rising demand for the yellow metal's ETFs. UK, home to many ETFs, bought 91 tons of gold in July, a whopping 13 times more than the previous month, according to Swiss gold export data. "We believe the main reason was gold ETF-covering," UBS analysts say. Gold ETFs typically store the physical gold in vaults. "With gold ETF holdings up by more than 250 tons since the end of May, we think Swiss gold exports to the UK are likely to stay elevated in August as well," UBS adds. UK strikes gold: Gold is gold! (Thyagaraju Adinarayan) ***** GEARING UP FOR AN ITALIAN GOVT DEAL (1058 GMT) Uncertainty about a 5-Star Movement's vote over a proposed coalition government deal with centre-left Democratic Party isn't hurting Italian assets this morning. Despite the lack of visibility on the vote's result (expected by 1730 GMT), it looks instead that investors are betting that the coalition will take office. "The outcome of the vote is still highly uncertain and warrants some caution, although this is likely to represent the last hurdle before a new government is formed in Italy," say UniCredit strategist Roberto Mialich and economist Tullia Bucco. "Should the M5S membership vote against the alliance... this could mean losing the opportunity to get some of the key points of their agenda approved," they argue. Milan stocks are down but in line with the rest of the market, while bond yields have hit fresh record lows, as the 5-Star and the PD unveiled a shared policy programme for their mooted coalition. "Our base case remains that the government will see the light and the trend of bond spread contraction could continue," an Italian broker says. The Milan bourse is up around 17% year-to-date, which makes it the top gainer among major euro zone benchmarks, having recovered from previous sharp underperformance. (Danilo Masoni) ***** COME RAIN OR SUNSHINE, UK HOUSEBUILDERS IN DEMAND (0937 GMT) Corbyn or Johnson, "deal" or "no deal", UK housebuilders are expected to outperform from here. "We believe investors should focus on the fundamentals of the market, which remain healthy. Demand for homes remains high, with significant political support for ownership over other forms of tenure," Berenberg analysts say. As the chances of a UK general election loom, sterling has been sharply selling off, denting domestically-exposed stocks. But, analysts and traders say it's just about time for the sector to do well, helped by rising demand, government support and ultra-low interest rates. Deutsche Bank says "another powerful wave" of government support could be on the cards with a Help to Buy extending beyond 2023. And with little prospect of a rise in interest rates, the sector is expected to benefit. "It is politically unacceptable for any government to neglect the housing market as the 2017 Election so starkly illustrated," DB analysts say. A "buy" rating on Taylor Wimpey, Persimmon, Bellway and a "sell" on Berkeley Group are among Deutsche Bank's top calls. A London-based trader says it's a nice time to buy UK housebuilders as they are cheap and he believes if Tories can continue to govern the country housebuilders could get a boost from the extension of Help to Buy scheme. -- LIVE MARKETS-Street bullish on some UK housebuilders Here's a look at performance of housebuilders when an election was called in 2017: (Thyagaraju Adinarayan) ***** OPENING SNAPSHOT: LONDON RISES SLIGHTLY, EURO ZONE ENDS 3-DAY WINNING STREAK (0738 GMT) Euro-zone shares are on the back foot this morning, as investors lock in profits from a three-day winning streak that saw indices scale near one-month highs amid continued concerns over global trade tensions. Weakness in miners and domestically focused companies like housebuilders and the supermarkets have curbed the FTSE 100's gains as investors worry about a possible general election and deepening uncertainty over Brexit. The export-heavy index is up 0.1%, which may be considered pretty meagre given the massive drop in sterling earlier this morning. Plumbing company Ferguson is the top gainer, hitting October highs as investors cheered news it plans to spin off its UK business to focus on its North American operations. In France, Iliad has dropped almost 4% after its disappointing results, while Takeaway.com was down 2.3% after one of Just Eat's top shareholders said it would vote against its merger deal, looking for a better deal. IQE, which supplies wafer products to the semiconductor industry including Huawei, delivered a first-half loss and warned of order delays due to the U.S. restrictions on the Chinese company. Its shares are down 1.6%. (Josephine Mason) ***** AHEAD OF THE OPEN: PLUMBING, FOOD DELIVERY AND BREXIT (0659 GMT) European stock futures are a very mixed bag now, with Euro STOXX and DAX swinging in and out of negative territory, while FTSE futures are outperforming after sterling sank to more than 20 year lows as lawmakers and investors brace for a showdown in Parliament over Brexit later today. In corporate news, Ferguson shares are expected to get a lift from news the British plumbing products company will separate its UK operations to focus on its North American business and said CEO John Martin will step down in November this year. Dealers are also expecting pressure on Just Eat after one of its top shareholders said it would vote against the planned merger with Takeaway.com. Two dealers say French IT company Iliad results missed expectations and seen lower, while Nordex shares are up almost 4% in premarket trading after winning a contract to install wind turbines in Scotland. Investors will be keeping tabs on Hurricane Dorian, which pounded the Bahamas, killing at least five people and was heading towards the U.S. coast where more than a million people have been ordered evacuated. UBS estimated on Monday it could cause insurance industry losses of up to $25 billion. Swiss Re, Lancashire and Beazley have exposure to the U.S. market, according to traders. Deutsche Boerse may get a boost from news it will be promoted into the euro-zone chip STOXX50E index as part of the semi-annual reshuffle. UK headlines: IQE posts first-half pretax loss, cites weak smartphone market Lloyds Banking Group lands $4.5 bln Tesco Bank mortgage portfolio Ferguson to separate UK operations, CEO Martin to step down Glencore wins transfer tax dispute over Australian copper payments BRIEF-Ryanair Says Aug Traffic Up 8% To 14.9 Mln Customers BRIEF-DS Smith Affirms Financial View, Plastics Unit Disposal On Track BRIEF-Synnovia Says Unit Of Funds Advised By Camelot Capital To Buy Co For 125P/Share BRIEF-Eminence Capital Says It Intends To Vote Against Just Eat-Takeaway.Com Merger BRIEF-Restaurant Group Says Exploring Options Outside Of Travel Hubs In UK BRIEF-Real Good Food Says CEO Hugh Cawley To Step Down BRIEF-Severfield Affirms FY20 View (Josephine Mason) ***** AMID BREXIT SHOWDOWN, LONDON SINGING TO ITS OWN TUNE (0626 GMT) After briefing opening losses, European stock futures are showing remarkable strength in early deals, extending their winning streak into a fourth day even as investors remained rattled by the protracted U.S.-China trade spat. London's FTSE futures are stealing the show after sterling sank to January 2017 lows earlier as lawmakers (and the country) ready for a showdown in Parliament over Brexit. Lawmakers will decide today whether to move Britain one step closer to a snap election when they vote on the first stage of their plan to block PM Boris Johnson from pursuing a no-deal Brexit. Investors are eyeing whether the export-laden blue chip index can breach the 200-day moving average at 7,363 pence, considered a key technical resistance. "Traders are now pricing in the possibility of a no-confidence vote this week, a scenario which could get the UK’s political scene uglier than it already is," says Ipek Ozkardeskaya, senior market analyst at London Capital Group. "A snap election would mean that either Johnson receives a mandate to quit the EU with no deal on Oct 31, or the Brexit deadline is postponed – again. Both scenarios justify a weaker pound." Here are some early headlines: Lloyds Banking Group lands $4.5 bln Tesco Bank mortgage portfolio Former Renault-Nissan executive Deboeuf named PSA's industrial strategy director Glencore wins transfer tax dispute over Australian copper payments Roche, Spark again extend $4.3 bln takeover offer EXCLUSIVE-Telia offers concessions as EU probes Bonnier deal - EU document Vivendi trust says it could take action if banned from Mediaset meeting UK retail sales flat-line, consumers stockpile food for Brexit - surveys Hurricane Dorian could cost insurers $25 bln- UBS Deutsche Boerse promoted to euro-zone blue-chip stocks index in reshuffle (Josephine Mason) ***** EUROPE: SINGING TO ITS OWN TUNE, FOR NOW (XX GMT) Let's see what happens when Wall Street returns from the long holiday weekend, but for now Europe is expected to hold up pretty well again even as Asian markets remain under pressure overnight amid worries over the U.S.-China trade fictions. Financial spreadbetters expect London's FTSE to open 15 points higher at 7,297, after outperforming the rest of Europe yesterday amid pressure on sterling driven by Brexit disruption, Frankfurt's DAX to open 5 points higher at 11,959, and Paris' CAC to open 2 points lower at 5,491. (Josephine Mason) ***** (Reporting by Danilo Masoni, Josephine Mason and Thyagaraju Adinarayan)