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CORRECTION-European shares fall led by utilities, real estate; Tesco soars

(Corrects spelling of trader's name in sixth paragraph.)

* STOXX 600 down 0.7 pct; index is down 6 pct this year

* Utilities, real estate lead fallers

* Deutsche Bank's rebounds further in positive bank sector

* Tesco hits highest in over a year on strong earnings

By Danilo Masoni

MILAN, Oct 5 European shares fell on Wednesday on concern the European Central Bank might reduce the pace of bond buying before its purchase programme ends, hitting utilities and real estate stocks hardest.

The STOXX 600 was down 0.7 percent by 0815 GMT, with all sectors but financials in the red, and following a rise of 0.8 percent in the previous session. The pan-European index is down around 6 percent so far this year.

British retailer Tesco soared on a well-received earnings update.

Bloomberg reported late on Tuesday that the ECB will probably gradually wind down its bond purchases before it concludes quantitative easing, rattling global markets and sending bond prices lower.

The ECB said its decision-making body had not discussed reducing the pace of its monthly bond buying, and some investors said it was too early to say whether market concerns were justified.

"No doubt ECB QE (quantitative easing) won't go on forever, but at the same time QE has still a bit to run and ... it might be premature to assume that the ECB has made any decision regarding QE going forward," said Markus Huber, trader at City of London Markets.

The utilities and real estate indexes, which tend to outperform when yields contract because sector stocks offer a stable income stream, were down 1.4 percent and 1.9 percent respectively.

Banks rose as a gradual reduction of ECB bond purchases would tend to alleviate pressure on their margins, stretched by ultra-low interest rates. The STOXX 600 Bank index rose 0.5 percent, with Italian lenders Intesa Sanpaolo and UniCredit which rising 2 percent and 1 percent respectively.

Deutsche Bank rose 1 percent after German markets newsletter Platow Brief reported that the German lender was hoping for a settlement of $4-5 billion by end-October with U.S. authorities seeking a fine of up to $14 billion for the mis-selling of mortgage-backed securities.

Tesco rose 7.8 percent, touching its highest level in more than a year after posting first-half results at the top end of expectations. It said it would increase investment to boost profitability over the next three years.

Telecoms group SFR fell 5.3 percent after France's market watchdog blocked an all-share buyout offer from rival Altice.

Insurer NN Group fell 3.7 percent after launching a bid for smaller peer Delta Lloyd. Delta Lloyd soared 28 percent to a touch below NN Group's offer price. (Reporting by Danilo Masoni; editing by John Stonestreet)

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