Downbeat Draghi curbs gains on European shares as tech shines

* Euro zone stocks index climbs 0.5 pct

* STMicro upbeat outlook brings tech relief

* ECB's Draghi warns of weaker growth ahead (Recasts, adds details, closing prices)

By Danilo Masoni and Helen Reid

MILAN/LONDON, Jan 24 (Reuters) - European shares ended off highs on Thursday as a bounce in tech stocks after results from chipmaker STMicro was offset by late slide among banks following downbeat comments from ECB President Mario Draghi over the health of the region's economy.

The euro zone STOXX index ended up 0.5 percent, having risen as much as 0.8 percent earlier in the day, while Germany's DAX was also up 0.5 percent and Italy's FTSE MIB climbed 0.9 percent.

Draghi acknowledged on Thursday that economic growth in the euro zone was likely to be weaker than previously expected due to the fallout from factors ranging from China's slowdown to Brexit.

That drove European stocks off earlier highs, while banks changed course, also hit by Draghi downplaying the possibility of a new round of cheap funding for the battered sector.

"The ECB’s toolkit is realistically limited ... so it makes sense to keep the powder dry in what is a crucial few months for the global economy," said Nick Wall, fund manager at Merian Global Investors.

The euro zone's banking index fell 0.5 percent, having risen more than 1 percent before Draghi's remarks.

Tech however continued to be strong throughout the session, ending up more than 2 percent.

Shares (Berlin: DI6.BE - news) in STMicro, which hit a two-year low earlier this month, rose 10 percent after the chipmaker gave an upbeat forecast for the second half of the year, easing market fears about a downturn in the semiconductor industry.

The outlook outshone a prediction of a sharp fall in first-quarter sales and gave a lift to other stocks in the battered sector.

AMS (IOB: 0QWC.IL - news) , Siltronic (IOB: 0R8P.IL - news) , Infineon (Xetra: 623100 - news) , ASML (Milan: ASML.MI - news) rose between 4 and 7 percent.

Investors are closely watching results this season after earnings expectations sank as a slowing global economy takes its toll. Companies' comments on both current trading and the future outlook will be critical.

"The earnings season has been reasonable so far, but when you've got these macro headwinds it doesn't give people confidence to place their marginal pound in risk assets," said Gary Waite, portfolio manager at Walker Crips Investment Management.

Disappointing results dented some.

Shares in Novozymes (LSE: 0Q4U.L - news) fell 5.7 percent after the Danish pharmaceuticals company said Middle East markets were likely to remain weak in 2019.

Italian fashion brand Tod's fell 5.9 percent as like-for-like sales for 2018 fell 3 percent due to a worsening performance in Italy and the rest of Europe.

"We believe a turnaround is unlikely to materialise anytime soon," said Berenberg analysts.

Outside results, deal news drove some moves.

Denmark's DSV (LSE: 0JN9.L - news) rose 0.7 percent after Kuehne & Nagel said Panalpina was too overvalued for it to make a takeover bid.

Kuehne & Nagel's comments cut the probability of a costly bidding war for Panalpina, a positive for DSV which approached the Swiss logistics firm with a $4.1 billion offer last week.

Investors remained sceptical any market rally could last as long as the U.S.-China trade war and Brexit negotiations remained unresolved.

"I still think the headwinds are still too strong, we see the market trading sideways until some of these issues get resolved," said Walker Crips (LSE: WCW.L - news) ' Waite.

(Reporting by Danilo Masoni and Helen Reid; Editing by Catherine Evans)