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Tech sector tightens its grip over Europe's stock markets

* Euro STOXX 50 reshuffle

* Tech investor Prosus to enter benchmark

* Weight of banking sector shrinks

LONDON/MILAN, Sept 2 (Reuters) - Surging technology stocks are increasing their influence over European stock markets, with Prosus poised to snatch a key spot in the continent’s leading index.

Prosus, one of the world’s largest technology investors, will make its debut on the Euro STOXX 50 on September 21 as part of a reshuffle of the index, index provider STOXX announced on Tuesday. Prosus owns nearly a third of China’s Tencent.

Europe’s Tech index is up over 14% so far in 2020 while the broader pan-European STOXX 600 is down more than 10%, hit hard by the economic downturn triggered by the lockdowns to fight the coronavirus pandemic across the continent. Tech stocks have led European and U.S. bourses throughout the COVID-19 crisis.

Inclusion into an index can help companies bring extra investors on board. Equita analyst Gianmarco Bonacina estimates that Prosus could benefit from up to 2 billion euros ($2.4 billion) in passive fund flows through its promotion to the top 50 stocks index.

While tech stocks have risen in influence, Europe’s once dominant banking industry has gradually shrunk over the last decade. France’s Societe Generale and Spain’s BBVA are being demoted from the benchmark.

The weight of the banking sector in the region’s benchmark STOXX 600 index is just 6%, according to Refinitiv, down from more than a fifth in 2006. The tech sector meanwhile broke above 7%, its highest since the dotcom bubble.

“A significant driver of European equity underperformance over the last decade has been its sector mix, with the region’s stock market skewed away from Technology and towards more ‘legacy’ industries where the underlying growth trends are more muted,” Morgan Stanley wrote in an equity strategy note.

The telecom sector, which enjoyed a golden age at the turn of the millennium, is losing two spots with French and Spanish groups Orange and Telefonica set to be demoted.

The other stock making its exit from the EURO STOXX 50 is Germany-based healthcare group Fresenius.

Among other companies joining Europe’s elite are Dutch payment processor Adyen, German residential real estate company Vonovia, French wine and spirits group Pernod Ricard and elevator maker Kone. ($1 = 0.8434 euros)

Reporting by Julien Ponthus and Danilo Masoni in Milan;Editing by Elaine Hardcastle

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