European shares recover from three-week lows, but weekly momentum fizzles

By Shashwat Chauhan and Amir Orusov

Sept 26 (Reuters) - European stocks clawed their way back from three-week lows on Friday, lifted by gains in financials and industrials, leaving the benchmark index more or less where it began the week.

The pan-European STOXX 600 .STOXX rose 0.8%, and ended the week just 0.07% higher.

Spanish stocks .IBEX outperformed other regional markets, rising 1.3% to close at a more than one-week high, with other major indexes also in positive territory.

Germany's Munich Re MUVGn.DE and France's SCOR SCOR.PA led European insurer .SXIP stocks 2.1% higher, snapping a three-day losing streak.

The construction and materials sector .SXOP gained 1.1%, with Ireland's Kingspan KSP.I up 1.2% after brokerage Citigroup raised its price target.

Shares of steel producers also rose after German business daily Handelsblatt reported that the European Commission plans to impose tariffs of 25% to 50% on Chinese steel and related products.

The world's second-largest steelmaker ArcelorMittal MT.AS was up 2.6%, while Aperam APAM.AS rose 2.2%. Germany's Thyssenkrupp TKAG.DE added 3.5% and Salzgitter SZGG.DE gained 5.2%.

TARIFFS BACK IN FOCUS

Healthcare stocks .SXDP reversed earlier losses to end flat, a day after U.S. President Donald Trump announced a new round of punishing tariffs, including a 100% import duty on branded drugs.

"It was already priced in," said Nabil Milali, multi-asset & overlay portfolio manager at Edmond de Rothschild Asset Management in Paris.

"A lot of investors were expecting these kinds of tariffs and it was partly reflected in valuations in the healthcare sector."

The sector is one of the worst performers in Europe so far this year, with a sharp decline in weight-loss drugmaker Novo Nordisk NOVOb.CO one of the biggest drags.

Trump also announced a 25% levy on heavy-duty trucks, pushing the shares of Daimler Truck DTGGe.DE and Traton 8TRA.DE down more than 2% each.

U.S. inflation data in line with expectations eased fears that sticky price pressures could see the Federal Reserve delay rate cuts. Markets had been banking on aggressive easing this year but resilient economic indicators have tempered the optimism. Traders now expect about 39 basis points of cuts by December — a slight pullback from earlier bets of over 40 bps, according to LSEG data.

UK's InterContinental Hotels Group IHG.L gained 4% after JPMorgan double upgraded its rating to "overweight" from "underweight".

Italian fashion group Brunello Cucinelli BCU.MI extended Thursday's losses by another 1.7%, rocked by a report from short-seller Morpheus Research.

Lufthansa LHAG.DE rose 1.6% after a Reuters report said the airline is expected to announce several thousand job cuts on Monday.