* STOXX 600 down 0.4 pct
* Utilities biggest sectoral faller led by Enel
* Steinhoff plummets after losing credit lines
* Dialog rises after Tsinghua increases stake (Recasts, adds details, closing prices)
By Danilo Masoni and Helen Reid
MILAN/LONDON, Dec 19 (Reuters) - European shares pulled back on Tuesday in a broadly weaker market as a rally inspired by investor optimism about a tax reform in the United States lost its strength.
Expectations that the long-anticipated U.S. tax bill will pass this week lifted the pan-European STOXX 600 benchmark by as much as 0.2 percent in morning trade.
But the index turned lower and accelerated losses in afternoon, ending down 0.4 percent.
Traders said there was no clear catalyst but that jitters on the bond market, where Germany's 10-year government bond yield hit a three-week high with its biggest one-day jump in more than three months, had weighed.
"Bond yields have flared up and that might have hurt stocks too," said Giuseppe Sersale, fund manager at Anthilia in Milan.
"The moves on the bond market could be linked to expectations of bigger bond issues by the German government as well as technical factors."
Most sectors on the STOXX ended in negative territory with utilities leading the decline, down 1 percent. Italian power company Enel declined 2.7 percent, hurt by a downgrade to neutral from outperform from Macquarie.
Top faller in Europe was Steinhoff, down 20 percent, after the South African retailer hit by an accounting scandal said it had started to lose credit lines from lenders.
Among the gainers was chipmaker Dialog Semiconductor which rose more than 8 percent after Tsinghua raised its stake in the company further to 9 percent.
Tsinghua Unigroup has been adding to its stake since Dialog shares plunged in November on a report the power management chip maker might lose its biggest client, Apple.
Shares in AMS, another chipmaker, rose 8 percent, but this wasn't enough to boost the tech sector, which fell back 0.5 percent. The highly-valued tech sector has weakened in recent weeks as investors shifted into bank stocks.
Shares in Anglo-South African financial services group Old Mutual gained 2.7 percent after the company said it would sell its Buxton UK wealth business to TA Associates for $800 million as part of a planned break-up.
Intrum Justitia shares fell 7.5 percent after the debt collection firm said its CFO would leave the company.
Budget airline Ryanair gained 2.3 percent, bouncing back after six straight sessions of losses caused by investors' concerns over the firm's decision to recognise unions.
Telecoms stocks outperformed, boosted by a note from Morgan Stanley arguing the industry could fare better in 2018 thanks to successful cost-cutting, stronger mobile revenue growth and lower cash tax rates.
Telcos have been among the worst performing sectors this year, down 2.5 percent from January.
Overall euro zone equities were drawing to the close of a stellar year of gains, shrugging off a strengthening euro to deliver substantial returns.
"If you look at performance in euros, European equities had a very strong year even compared to U.S. companies," said Valentin Bissat, equity strategist at Mirabaud Asset Management, adding the difference in local currency performance was mainly down to the euro's strength.
"More importantly, it came from earnings growth rather than valuation expansion," he added.
Reporting by Helen Reid; Editing by Catherine Evans