Slowing China, weak earnings weigh on European mining stocks

* European resources, best performers YTD, down nearly 3 pct

* Earnings, China data offers reality check after rally

* Sector index off 13.5 pct from April highs (Adds details, quotes)

By Atul Prakash

LONDON, May 9 (Reuters) - A turn for the worse in Chinese economic data, sluggish earnings and rich valuations are proving a tough hurdle for European metals (Xetra: A1XE4B - news) and mining stocks, putting at risk their position as the region's best performing sector this year.

Weaker-than-expected Chinese trade data released over the weekend highlighted deepening worries about demand and spurred a sharp slide in metals price that spilled over to European equity markets on Monday.

Sector bellwethers Rio Tinto (LSE: RIO.L - news) , down 4.5 percent, and Anglo American (LSE: AAL.L - news) , down 6.6 percent, led losses on the day.

The 2.6 percent slide on the European basic resources sector index took its losses since their April 20 peak to more than 13 percent. It (Other OTC: ITGL - news) is still up 10 percent this year, making it the region's best performing sector.

That rally, in the face of dwindling earnings growth, has lifted the sector's price-to-earnings valuations to their highest in more than a decade, according to Thomson Reuters (Dusseldorf: TOC.DU - news) data, leaving it particularly vulnerable to pullbacks.

"Caution is the watchword," said Peter Dixon of Commerzbank (Xetra: CBK100 - news) . "China's economy is not going to show a massive pickup and I don't think the sector would be able to generate the kind of earnings that it used to have until recent years."

Despite low expectations going into the first-quarter season the 11 metals and mining companies that have reported numbers so far have missed forecasts by 2.1 percent on average, according to StarMine, with year-on-year earnings falling 19 percent.

Yet European resources stocks trade at 23.6 times forward earnings, their richest valuations relative to the broader European equity market in at least 10 years. Chart: http://reut.rs/276OmWv

"European miners are priced for a highly optimistic Chinese growth recovery," said Deutsche Bank (LSE: 0H7D.L - news) analysts in a note to clients, adding that only a continued rise in metal prices could underpin this year's share price gains.

However, the signs of a faltering economic rebound in China and its recent clampdown on speculation in the onshore commodity futures markets have hit metals prices.

Steel and iron ore futures fell 6 percent in China earlier on Monday, while copper hit its lowest in nearly a month.

European mining shares have closely tracked the price of copper over the past six years. Chart: http://reut.rs/1Yhpg1g

Analysts already forecast earnings for the European resources sector will fall more than 12 percent over the next year and further weakness in base metals prices is likely to accelerate downgrades, putting further pressure on share prices.

(Reporting by Atul Prakash; Editing by Vikram Subhedar)