European shares dip ahead of new U.S. sanctions on Russia

The German share price index, DAX board, is seen at the stock exchange in Frankfurt, Germany, March 21, 2018. REUTERS/Tilman Blasshofer

By Danilo Masoni and Helen Reid

MILAN/LONDON (Reuters) - European shares fell on Monday as investors awaited new U.S. sanctions on Russia, while losses were limited as the market expected there would be no immediate military escalation in Syria following the weekend's American-led strike.

Trading remained cautious as tensions between Western powers and Russia persisted and markets braced for new U.S. sanctions on Russia over its continued support of Syrian President Bashar-al Assad.

"Markets react to economic sanctions (in a way that they do not react to air strikes), as specific assets are directly affected," said UBS chief economist Paul Donovan in a note.

The pan-regional STOXX 600 <.STOXX> index fell 0.4 percent. while among other European benchmarks, the FTSE <.FTSE> tumbled 0.9 percent and Germany's DAX <.GDAXI> was also down 0.4 percent.

Over the weekend, the United States, France and Britain launched 105 missiles targeting what the Pentagon said were three chemical weapons facilities in Syria in retaliation for a suspected poison gas attack in Douma.

Shares in some Russia-exposed companies underperformed as investors awaited the new sanctions on Russia, which a U.S. diplomat said would target companies dealing with equipment related to Assad and chemical weapons use.

Precious metals miner Polymetal fell 9.4 percent and miner Evraz fell 6.8 percent, while Austrian lender Raiffeisen Bank , which gets a substantial chunk of revenues from Russia, declined 3.7 percent.

Swiss pumpmaker Sulzer , which was last week freed from U.S. sanctions related to its Russian investor Viktor Vekselberg, slipped 1.5 percent. Over the weekend Sulzer said its business was "fully back to normal" after it received a second license fully unblocking its assets.

Elsewhere management changes and M&A caused some sharp moves.

Shares in advertising group WPP fell 6.1 percent after chief executive and founder Martin Sorrell quit, leaving the group without a boss at a time of huge change in the industry.

"The fact is that there is a lot of uncertainty ahead. It is not clear whether the current margin targets or dividend payout will survive management change," said Citi analyst Thomas Singlehurst, who reiterated however his buy rating on the stock, citing the company's current depressed valuation.

WPP shares, which have already fallen 30 percent this year, pared part of their losses and were down 2.1 percent. Analysts and peers have speculated that the group of 200,000 people could be broken up without Sorrell at the helm.

The top STOXX gainer was Whitbread , up 6.2 percent after U.S. activist investor Elliott Management said it now held the largest stake in the coffee-shop and hotel operator.

Amsterdam-listed telecoms firm Altice jumped 5.4 percent late in the day, after a report that French conglomerate Bouygues is considering a bid for Altice France with other investors.

French peer Iliad also jumped 4.6 percent on the prospect of consolidation in the industry, while Orange climbed to the top of the CAC 40, up 1.6 percent.

Volkswagen shares fell 2.9 percent to the bottom of the DAX after the carmaker said it was open to buying a majority stake in U.S. truckmaker Navistar.

Elsewhere, some earnings were disappointing. Software AG was among the leading fallers, down 6.1 percent. Traders said the fall was due to weaker-than-expected quarterly revenues at its Digital Business Platform business.

(Reporting by Danilo Masoni, Editing by Robin Pomeroy and Toby Davis)

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