* FTSEurofirst 300 down 0.5 percent
* Shell, ENI buoyed by Qatar stake buy report
* Vallourec slumps on 2012 warning
By Tricia Wright
LONDON, May 11 (Reuters) - European shares fell on Friday as a huge loss from JPMorgan and mounting concerns over Spain's banking sector caused investor confidence to deteriorate.
Banking stocks came under pressure after JPMorgan Chase & Co, in a shock disclosure, said it suffered a trading loss of at least $2 billion from a failed hedging strategy.
Although the loss was specific to JPMorgan, it could have broader negative implications - raising the threat of further regulatory scrutiny and the difficulties of risk management, analysts said.
Spain's banking problems also loomed large in investors' minds, with UBS warning of "significant risks" to Spanish banks, its sovereign debt and the economy if Madrid's plan to shore up the country's lenders, to be unveiled on Friday, disappoints.
UBS reiterated "sell" ratings on Banco Santander, Banco Sabadell and Bankinter, flagging risks of stock dilution and estimates downgrades with Spanish lenders expected to face demands to siphon off their toxic real estate assets and make new provisions.
Expectations of a Greek political deal helped soothe some market nerves, with conservative leader Antonis Samaras saying there were still hopes a government could be formed after Sunday's inconclusive election to avoid a repeat poll.
"Big day for Greece, Spain, the euro and the U.S. banking sector. Overnight news, with even JPMorgan not able to control its traders, will mean further regulation and lower profits," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500 million of assets.
The FTSEurofirst 300 was down 0.5 percent at 1,013.82 by 0921 GMT, though off the session low of 1,009.24, buoyed by a rally in heavyweight energy stocks on reports Qatar's sovereign wealth fund is set to buy a stake in Royal Dutch Shell.
Britain's Royal Dutch Shell and Italy's ENI enjoyed respective gains of 0.5 percent and 1 percent, with Qatar's sovereign wealth fund in "very advanced talks" to buy a 3 to 5 percent stake in Shell and also negotiating a stake in ENI, according to a report in the Middle East Economic Survey.
Investors were confronted with a batch of downbeat corporate earnings news on Friday. Vallourec, a French maker of seamless steel tubes, was easily the worst performer on the FTSEurofirst 300, down 20 percent, after halving its 2012 sales outlook.
Against the gloomy backdrop for banks, France's Credit Agricole suffered a 1.2-percent fall after charges at its business in debt-laden Greece helped trigger a steeper-than-expected 75 percent drop in quarterly profit.
Spain's Telefonica, meanwhile shed 2.1 percent as its first-quarter net profit halved after the value of its stake in Telecom Italia plunged following a capital increase, and it cut prices in its recession-hit home country.
Andrew Bell, chief executive of Witan, a 1.1-billion pound ($1.8 billion) investment trust, said while investors are twitchy in case of a re-run of market wobbles seen in the second quarter of 2010 and Q3 2011, with Europe the common thread, there is reason to be relatively optimistic.
The U.S. recovery has proved more durable than feared, he said, commodity pressures on emerging economies and consumers in the West are reducing, and the European Central Bank has tools to contain a banking run.
"So, whilst nerves might persist this feels a better class of panic than before," he said.