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European shares steady as firmer luxury stocks offset weaker banks

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* LVMH rises after strong sales

* Other luxury good stocks also outperform

* STOXX 600 index down around 7 pct so far in 2016

By Sudip Kar-Gupta

LONDON, Oct 11 European stock markets were steady on Tuesday as gains in the shares of major luxury goods companies, after strong figures from LVMH, offset the impact of weaker bank stocks.

The pan-European STOXX 600 index was flat and still down by around 7 percent since the start of 2016.

Berkeley Futures' associate director Richard Griffiths said he still had concerns about the generally weak economic backdrop facing Europe, with Britain's decision to quit the European Union adding another layer of uncertainty.

"I'm not an enthusiastic buyer of the markets here. I see more downside than upside," said Griffiths.

However, LVMH outperformed to rise 5.4 percent after the company reported a forecast-beating acceleration in third-quarter sales.

Rival luxury good stocks such as Christian Dior, Richemont and Burberry also advanced to feature among Europe's best-performing stocks.

However, the STOXX Europe 600 banks index fell 0.4 percent, bringing its losses for the year to around 22 percent -- the worst-performing sector in Europe.

The European Central Bank's move to cut interest rates to record lows, with rates now in negative territory, has kept stock markets afloat since those rates have hit returns on bonds and cash, making the returns available from stocks appear more attractive by comparison.

However, negative interest rates also hit the profits of European banks, since they make less money from their lending activities in a negative rate environment.

"We remain cautious on the outlook for European bank profitability," UBS analysts said in a research note. (Editing by Keith Weir)

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