May 26, 2016 / 2:52 PM / a year ago

European shares steady as Banco Popular cash call hits banks

(ADVISORY- Reuters plans to replace intra-day European and UK stock market reports with a Live Markets blog on Eikon - see cpurl://apps.cp./cms/?pageId=livemarkets for site in development. See the bottom of the report for more details) Adds details, updates prices)

* STOXX 600 flat after touching 4-week high in previous session

* Bank sector weighed down by Banco Popular rights issue

* Miners top sectoral gaines, but oil stocks slip back

* ArcelorMittal rallies after upbeat note from Goldman

By Danilo Masoni and Alistair Smout

MILAN/LONDON, May 26 (Reuters) - European shares steadied on Thursday, with banks coming under pressure after a surprise rights issue by Spain's Banco Popular fuelled fears others in the region may follow to strengthen their balance sheets.

The pan-European STOXX Europe 600 was little changed by 1433 GMT, while the FTSEurofirst 300 added 0.1 percent. Both hit a four-week high in the previous session, helped by a two-day rally in banking stocks.

Europe's banking sector index gave up part of those gains, falling 0.7 percent after Banco Popular announced a 2.5 billion euro cash call, which caught some investors by surprise. Its shares fell 25 percent.

"This is creating downward pressure across the rest of the sector for the main banks," Citi said in a note for clients.

Speculation about potential capital hikes weighed particularly on Spanish and Italian banks with Caixabank , Sabadell, UBI and UniCredit all down by more than 4 percent.

Guardian Stockbrokers director of trading Atif Latif said the Banco Popular rights issue suggested euro zone banks were still a major concern.

"Credit risk concerns, lack of credible asset quality, balance sheet issues and a lack of reserves... all this makes for gloomy reading for those with EU bank exposure," he said.

The STOXX 600 Basic Resources index was the top sectoral riser, up 1.5 percent as miners benefited from a rise in the price of copper.

ArcelorMittal, the world's largest producer of steel, was the biggest gainer in the sector and the broader STOXX Europe 600 index with a rise of more than 7 percent.

Goldman Sachs raised its target price on the stock, and maintained its "conviction list buy" recommendation.

Oil companies came off earlier highs as Brent crude slightly pulled back after earlier breaking above $50 a barrel for the first time in nearly seven months as a global supply glut showed signs of easing. The sector index was last flat.

Newspaper group Daily Mail and General Trust fell 12 percent after it said a print advertising downturn was squeezing margins in its media business, resulting in an 11 percent drop in first-half profit and a lower outlook.

Today's European research round-up

ADVISORY- Reuters plans to replace intra-day European and UK stock market reports with a Live Markets blog on Eikon (see cpurl://apps.cp./cms/?pageId=livemarkets for site in development). In a real-time, multimedia format from 0600 London time through the 1630 closing bell, it will include the best of our market reporting, Stocks Buzz service, Eikon graphics, Reuters pictures, eye-catching research and market zeitgeist. Breaking news and dramatic market moves will continue to be alerted to all clients and we will continue to provide a short opening story and comprehensive closing reports.

If you have any thoughts, suggestions or feedback on this, please email mike.dolan@thomsonreuters.com.

Mike Dolan, Markets Editor EMEA. (Editing by Catherine Evans)

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