May 4, 2020 / 6:58 AM / in 25 days

UPDATE 2-European stocks kick off May on dour note, ThyssenKrupp tumbles

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

* ThyssenKrupp sees cash squeeze despite elevator sale

* U.S., China spat over virus keep investors on edge

* Euro zone manufacturing collapses in April as virus spreads -PMI (Updates prices)

By Sruthi Shankar

May 4 (Reuters) - European stocks tumbled on Monday as investors returned from a May Day break to a fresh spat between the United States and China over the coronavirus crisis that triggered sharp declines in cyclical sectors.

The pan-European STOXX 600 fell 2.3% in a downbeat start to the month, after the index recorded a 6% gain in April. Euro zone shares were down 3%.

Sectors sensitive to economic growth, including oil and gas , automakers and banking, were the biggest drags, falling as much as 5%.

Germany's ThyssenKrupp slumped 16.4% after its management board told staff in a letter that the pandemic could cause a new financial squeeze despite the sale of its elevator business.

Most euro zone markets also felt the pressure from a weak Wall Street session on Friday following U.S. President Donald Trump's threat to slap new tariffs on China over the COVID-19 pandemic.

Ratcheting up tensions with the country, U.S. Secretary of State Mike Pompeo said on Sunday there was "a significant amount of evidence" that the virus emerged from a Chinese laboratory. China's Global Times said in an editorial that Pompeo was "bluffing".

"Sentiment continues to be dented by geopolitics as the blame game ramps up," Mark Taylor, a sales trader at Mirabaud Securities, wrote in a morning note.

"There has also be an air of optimism running ahead of itself despite continued reopening of various economies and Gilead's positive drug news."

European stocks climbed to a near two-month high last week as countries such as Italy and Germany moved to restart their economies and on hopes of a treatment for COVID-19 after Gilead Sciences' antiviral drug, remdesivir, helped improve outcomes for patients.

However, the data from IHS Markit showed final manufacturing Purchasing Managers' index (PMI) for the euro zone sank to 33.4 in April, its lowest since the survey began in mid-1997, as lockdowns to stop the spread of the new coronavirus forced factories to close and consumers to stay indoors.

Meanwhile, J.P.Morgan's equity analysts downgraded eurozone stocks to "neutral" from "overweight", saying its tilt towards value stocks such as banks were a drag and policy response to the COVID-19 crisis was weaker.

They also expect global equities "to have a consolidation/weakness phase" with future price-to-earnings ratio back at 20-year highs.

Germany's DAX fell 3.1%, while France's CAC 40 dropped 3.6% as shares in automakers PSA and Renault dropped on data showing French car registrations slumped by almost 89% in April.

Roche edged up 0.3% as it won U.S. emergency approval for an antibody test to determine whether people have ever been infected with the coronavirus.

In M&A news, Spain's Telefonica rose 2.9% as it confirmed talks with billionaire John Malone's Liberty Global over a possible merger between both companies' British units. (Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D'Silva)

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