January 29, 2020 / 9:38 AM / 24 days ago

UPDATE 2-Santander buoys European shares but coronavirus fears persist

(For a live blog on European stocks, type LIVE/ in an Eikon news window)

* Bank stocks gain after Santander results

* China economist warns on growth outlook

* German 2020 GDP forecast raised, but 2021 lowered

* FTSE 100 underperforms as oil majors lag

* Federal Reserve interest rate decision on deck (Updates to close)

By Susan Mathew and Medha Singh

Jan 29 (Reuters) - Banco Santander and Safran ensured European shares ended higher on Wednesday, even as investors weighed the potential impact of the fast-spreading coronavirus and an economist's prediction on the world No. 2 economy further dampened sentiment.

Spain's IBEX led regional bourses, lifted by a 4.4% rise in Santander after the lender posted a higher quarterly net profit, boosted by solid underlying performance in its main market Brazil and capital gains.

Along with a rally in Swedish banking group SEB, which topped fourth-quarter earnings, the euro zone banks index climbed 1%.

Boeing supplier Safran was also a major boost to the pan-region index after the planemaker's shares rose despite a surprise annual loss with analysts saying much of the bad news had been priced in..

After a recovery day on Tuesday, the pan-European STOXX 600 and most major country indexes traded not more than half a percent higher as sentiment still remained subdued on worries over the economic damage from the flu-like virus that originated in China.

The STOXX 600 shed nearly 3% on Monday as outbreak fears gripped markets. The virus has claimed 133 lives so far and infected more than 5,000 people in China, prompting a Chinese government economist to warn that the country's economic growth may drop to 5% or even lower.

"You've got the tension between what investors would like to do - keep pouring into equities, there is a great appetite to keep pushing these indices higher - but there keeps being these big global problems that keep forcing investors to have to question and justify a rebound when there is no reason to do so," said Connor Campbell, analyst at British financial spread better Spreadex.

German shares lagged regional peers, closing up 0.2% after dipping into the red during the session. China is Germany's most important trading partner.

Germany's economy minister raised the economic growth outlook for the country but cut expectations for 2021.

British shares closed flat as a slip in oil prices weighed on oil majors.

LVMH, Louis Vuitton owner, was one of the biggest drags on the STOXX 600 as slowing sales growth in the fourth quarter dented shares. Luxury stocks, which derive a chunk of their demand from China, had attempted a recovery on Tuesday.

Investor attention now turns to central bank meetings from around the world. The U.S. Federal Reserve is almost certain to keep interest rates on hold at the end of a two-day policy meeting later in the day, while expectations of a rate cut by the Bank of England on Thursday stand at 50%.

Friday will mark the UK's official departure from the European Union. (Reporting by Susan Mathew and Medha Singh in Bengaluru Editing by Bernard Orr and Matthew Lewis)

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