* China to impose higher tariffs on revised target list
* Vodafone falls on report of dividend cut plans
* Utilities stocks gain, investors favor defensive bets (Updates to close, adds strategist's quote)
By Aaron Saldanha
May 13 (Reuters) - European stocks continued their decline on Monday, on the heels of this year's biggest weekly loss, as an escalation in the U.S.-China trade war battered sentiment and prompted investors to shift into safer bets.
China said it would impose higher tariffs on most U.S. imports on a revised $60 billion target list, chilling risk appetite world over as it hit back at a tariff hike by Washington which came into force on Friday.
The pan-European STOXX 600 index dropped 1.2%, with all sub-sectors apart from utilities declining.
Germany's trade-sensitive DAX dropped 1.5%, while French shares fell 1.2%. London-traded stocks fell to a two month closing low, down 0.6%.
Graham Secker, European equity strategist at Morgan Stanley, said the near-term worsening in the risk-reward outlook for equity markets, amid rising trade tensions, may drive more traditional defensive sectors to outperform.
Utilities stocks - oft-considered a defensive bet - rose 0.2%. Centrica Plc rose 3% as Britain's top energy supplier maintained its full-year outlook.
Oil and gas stocks dipped 0.1%, saved from a steeper fall by Brent crude futures rising following attacks on vessels off the United Arab Emirates' coast.
Stocks of tariff-exposed auto-makers and their suppliers dived 2.7%, as all stocks on the sector index fell.
The slide on the day took the sector index from outperforming the STOXX 600 in the year to date to underperforming the broad benchmark. While the STOXX 600 has added 10.3% in 2019, auto stocks are now up 9.7%.
The telecommunications index slid 2.2% as all stocks on it fell. Vodafone Group led the decliners with a 5.2% drop.
Berenberg cuts its price target on the London-listed firm, which was reportedly going to cut its dividend to pay for auctions for mobile phone airwaves in Germany and Italy.
Chemicals firms slid 1.3%, with polymer maker Victrex Plc diving 7.2% after warning annual growth could stall following a much weaker first half due to fewer automotive and consumer electronics contracts.
Banks slid 1.6%, with Deutsche Bank and UBS falling 2% and 2.1%, respectively.
Talks between the German banking giant and the Swiss lender to tie up their asset management businesses have stalled, sources told Reuters, mainly over which bank would control the combined entity.
DWS, Deutsche's asset management unit, fell 3.3% to its lowest closing level in a month and a half.
Thyssenkrupp shed 8.7 percent. Short-sellers scrambling to unwind their bearish bets had sparked a record gain in the German firm's stock on Friday, when it said it would embark on a fresh restructuring and list its elevators business.
Reporting by Aaron Saldanha and Medha Singh in Bengaluru; Helen Reid in London; Editing by Alison Williams