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UPDATE 2-Tech, healthcare drag European stocks lower; banks jump

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

* European banks jump after Powell speech

* Technology stocks among biggest sectoral decliners

* Norwegian Air tumbles after H1 loss (Updates to close)

Aug 28 (Reuters) - European stocks slipped on Friday as investors dumped this year’s outperformers including technology and healthcare stocks and bid up banking shares after the U.S. Federal Reserve unveiled its new policy framework.

The pan-European STOXX 600 index slipped 0.5%, but still ended the week about 1% higher after signs of progress in COVID-19 treatments and vaccines spurred optimism earlier in the week.

Technology stocks, which have surged about 11% this year, were down 0.8%, and the healthcare index fell 1.1%.

Fed Chairman Jerome Powell announced a new policy framework on Thursday, which focuses more on boosting U.S. economic growth and less on worries that inflation could be running too high.

“If the Fed’s policies succeed in reflating the economy, interest rates are unlikely to fall much further and value stocks such as financials should begin to outperform growth stocks” analysts at BCA Research said.

Interest rate-sensitive banks, which have so far lagged the broader markets, jumped nearly 1.7% and were among the best sectoral performers this week.

Shares in BNP Paribas, HSBC and Banco Santander rose between 0.6% and 3.6%, providing the biggest boost to the STOXX 600.

Still, with coronavirus cases picking up again in Europe, investors fear that could impede an economic rebound from a crash in the second-quarter, though optimism around the development of a COVID-19 treatment has helped calm some jitters.

“We think an interrupted V-shaped recovery seems to be the way we’re heading,” said Francis Ellison, client portfolio manager of European equities at Columbia Threadneedle Investments.

“That means that we’re seeing a sharp recovery, but nowhere back to 2019 levels, and that will take a year or two to reach.”

Data on Friday showed German consumer morale worsened heading into September, casting some doubt on whether household spending in Europe’s largest economy is powerful enough to spur a recovery.

Norwegian Air tumbled 9.5% after the budget carrier said it still needed more cash to weather the COVID-19 pandemic as it reported a deep loss for the first half of 2020.

Italian state-owned bank Monte Dei Paschi di Siena gained 2.7% as it received a conditional green light from the European Central Bank for its bad loan clean-up plan.

Shares in German drugs company Bayer AG fell 2.7%. It said there were “bumps” in sealing its $11 billion settlement of U.S. lawsuits over its Roundup weed killer after a U.S. judge cast doubt on the progress of the agreement. (Reporting by Sruthi Shankar in Bengaluru; Additional reporting by Sagarika Jaisinghani; Editing by Shailesh Kuber and Mark Potter)

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