* FTSEurofirst 300 index ends 2.2 pct down
* China-exposed stocks among top decliners
* Valeo sinks despite guidance upgrade
By Atul Prakash
LONDON, July 27 (Reuters) - European equities dropped to a two-week low on Monday, recording their fifth straight daily decline, as fears for China’s growth prospects overshadowed some forecast-beating results.
A slightly better-than-expected July reading from the German IFO business climate index helped ease some of the sell-off pressure in early trading. But shares fell further following a weaker start on Wall Street on concerns that China’s growth prospects were dimming, after Shanghai stocks suffered their biggest one-day loss in eight years.
The FTSEurofirst 300 index ended 2.2 percent lower at 1,529.77 points after falling to 1,529.03, the lowest level in two weeks. It has fallen more than 5 percent in a week, but is still up 12 percent this year.
Sectors exposed to China - the world’s biggest metals consumer and a big market for automobiles, luxury goods, oils and industrial goods - were the worst hit. The European autos , basic resources, energy and industrial goods sectors fell between 1.3 and 2.8 percent.
“Investor sentiment is deteriorating because of signs of a slowdown in China. Other signals like German car exports to the country and China’s electricity output are also disappointing,” UniCredit strategist Christian Stocker said.
“We are advising our clients to hold their positions in the defensive sectors but sell autos and basic resources companies.”
Across Europe, benchmark share indexes in London, Paris and Frankfurt were also down between 1.1 and 2.6 percent. However, JPMorgan strategists maintained their overweight recommendation on euro zone equities, saying that improving economic fundamentals were likely to take centre stage again at some point.
Investors were focusing on the Fed’s two-day meeting from Tuesday for hints about the timing of a rate hike. Expectations that rates will rise in the next few months have helped the dollar, hitting commodities that are generally priced in the U.S. currency. A stronger dollar makes commodities costlier for other currency holders.
“Although the Fed has two explicit mandates - inflation and unemployment - they are going to be wary of what’s happening in the wider global environment, including in China. That will no doubt influence the scale of the U.S. rate rises,” said Oliver Wallin, investment director at Octopus Investments.
“There has been suspicion for some time that all is not as good as it seems in China. We are ‘underweight’ on emerging markets and have a feeling that there is more value to be found in the developed markets.”
Chinese shares tumbled more than 8 percent on Monday as an unprecedented government rescue effort to prop up valuations abruptly ran out of steam. The slump came after a survey showed on Friday that China’s factory sector contracted in July by the greatest amount for 15 months.
Shares in the Swiss bank UBS slid 1.6 percent in line with the wider market sell-off, despite reporting a forecast-beating set of quarterly profits. French car parts maker Valeo fell 5.4 percent despite raising its profit outlook and playing down the impact of a slowdown in China.
Mid-cap platinum miner Lonmin slumped 12 percent to a record low after Citi, Credit Suisse, JP Morgan and Deutsche Bank cut their price targets for the stock.
Theme park operator Merlin Entertainment dropped 4.3 percent after warning about annual profits following the temporary closure of its Alton Towers park after a roller-coaster crash in June. (Additional reporting by Lionel Laurent; Editing by Kevin Liffey)